Changes to NIC – How will they affect me?

2 months, 3 weeks ago by Oliver Atkinson

One of the headlines of the 2023 Autumn statement was the cut to National Insurance. After several years of uncertainty and raises in this area, we now have a reduction in the amount payable coming in January 2024, but are there any pitfalls to this change or anything to be aware of?

For the Employed

As an employee, you will see your main rates Class 1 NI contributions cut from 12% to 10% from the 6th of January 2024, and any payments made to employees after this date should show the new rate.

The change will only affect earnings up to the higher rate threshold of £50,270, so the maximum savings that an employee can make through this change will be £754 per year.

Any earnings over the higher rate threshold will continue to have the 2% contribution applied to them, with no changes in this area.

For the Self-Employed

Sole traders pay their NIC in a different way to employee. The main takeaway for many sole traders was the abolition of Class 2 NICs from 6th April 2024, outside of a voluntary arrangement. Class 2 NICs are a fixed, weekly amount that are calculated and paid annually by sole traders through self-assessment once they are above the relevant profit threshold of £6,725.

This weekly amount will no longer be applied going forwards, however it is important to note that sole traders who are above the profit threshold will receive a National Insurance credit so that they continue to gain access to contributory benefits, such as the state pension, even though no money will change hands.

The other contributions made by sole traders, Class 4 NICs, are also changing. From April 2024 the current rate of 9% will be lowered to 8% on profits above the threshold of £12,570. Given that all profits above the £12,570 threshold are already subject to 20% income tax, this is a small but helpful tweak for sole traders.

Whilst the cut to National Insurance Contributions across the board will be welcome news for many, it should be noted that the thresholds at which NICs are made have not changed. This means that the cuts to the rates that we are seeing will be to some extent, offset by the current inflation rate.

For further information and support, please contact us.