National Insurance Contributions

by | Nov 22, 2023 | Tax

Jeremy Hunt today announced changes to the National Insurance regime that will benefit millions of employed and self-employed individuals.

  • The main rate of Class 1 employee’s NIC will fall from 12% to 10% from 6 January 2024 (there is no corresponding reduction for employers). The main policy objective here is to drive an increase in working hours by individuals and to assist with the cost of living crisis. The additional Class 1 rate of 2% on employment income over £50,284 remains unchanged;
  • This means the average worker on £35,400 receives a tax cut in 2024-25 of over £450; families with two earners on average income will benefit by over £900. Higher paid employees will receive a greater NIC reduction overall;
  • The main rate of Class 4 NIC paid by the self-employed will fall from 9% to 8% from 6 April 2024. Class 4 NIC is payable on taxable profits of between £12,570 and £50,270. The additional Class 4 rate of 2% on profits over the upper profits limit (£50,270) remains unchanged;
  • Compulsory Class 2 NIC (currently £3.45 per week for each week you are self-employed) will be abolished from 6 April 2024. Individuals will continue to receive access to contributory benefits such as the State Pension.  This means an annual saving of £179 at current rates; and
  • The Lower Profits Limit of £12,570 will be frozen at this level until April 2025. This is the level at which the self-employed start paying Class 4 NIC. This means the band at which Class 4 NICs are paid will not be indexed in line with inflation, effectively a stealth tax.

Voluntary NIC: the government have extended the deadline to make voluntary contribution ‘catch ups’ for tax years between 6 April 2006 and 5 April 2018 to 5 April 2025.  Previously this deadline was 31 July 2023.  The benefit of catching up on missing years where there is an agreed shortfall, is to uplift the basic State Pension when claimed. The amount of state pension payable is based on the number of qualifying years an individual has available.

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