Measure
The government has announced that both employee and self-employed rates of National Insurance Contributions (NICs) are to be cut.
The main rate of Class 1 employee NICs will be reduced from 12% to 10%.
The main rate of Class 4 self-employed NICs will be reduced from 9% to 8%.
In addition to this, self-employed individuals will no longer be required to pay Class 2 NICs.
Broadly, employees earning more than £12,570 per annum will be affected by the reduction in Class 1 NICs.
Self-employed workers with annual profits of more than £12,570 will be affected by the reduction in Class 4 NICs and the removal of the requirement to pay Class 2 NICs.
The reduction of Class 1 employee NICs will take effect from 6 January 2024.
The reduction of Class 4 self-employed NICs and abolition of the requirement to pay Class 2 NICs will take effect from 6 April 2024.
The announcements have been presented as a measure of relief for workers and in that sense will be welcome. In the context of high inflation, workers have been dragged into paying tax or paying higher rates of tax as the personal allowance and income tax bands have been frozen. Some workers are still therefore likely to pay more tax and NIC than if the thresholds had been uprated.
The government will set out next steps on Class 2 reform next year. As part of this reform the government have stated that they intend to protect the interests of lower paid self-employed people who currently pay Class 2 NICs voluntarily to build entitlement to certain contributory benefits including the State Pension.