An overview of the recent and upcoming changes to National Insurance

An overview of the recent and upcoming changes to National Insurance

During last year’s Autumn Statement, the Chancellor of the Exchequer, Jeremy Hunt, outlined planned changes to various tax rates for the upcoming year. One of the changes announced was that the Class 1 National Insurance Contributions (NIC) would drop from 12% down to 10% for those whose earnings fall within the Primary Threshold. This drop in rates comes not long after the short-lived 1.25% rise during the 2022–23 tax year.

Many employees will already have seen a reduction in the NI withheld from payments received after 6 January 2024. This reflects a reduction of employee Class 1 NIC rate from 12% to 10% on earnings between £1,048 and £4,189 per month. This reduction is expected to result in an improved financial situation for around 27 million workers in the UK. The net savings for employees on different income levels in the 2024/25 tax year are demonstrated below:

Where employers and payroll software providers were unable to implement the NICs changes in time, employers will need to make retrospective adjustments to ensure employees are reimbursed any over deducted NICs. No changes to the employer Class 1 NIC rate were announced, and these remain at 13.8%. Company Directors are subject to a blended rate of 11.5% for the 2023/24 tax year.

Upcoming National Insurance Contribution changes for the self-employed

As of 6 April 2024, changes will also impact the self-employed. Namely, the main rate of Class 4 NICs will be reduced from 9% to 8%, and Class 2 NICs being abolished for those with profits above £12,570.

The Office for Budget Responsibility (OBR) has estimated that around 2.1 million self-employed individuals will benefit from the reduction in Class 4 NICs and abolishment of Class 2 NICs during the 2024/25 tax year. The savings achieved for different income levels are demonstrated in the table below:

We are here to help

If you would like to know more about these changes and how they may impact you, please get in touch with a member of our specialist team or your usual Azets advisor.