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 10% to 8%.
The main rate of Class 4 self-employed NICs will be reduced from 9% to 6%.
Broadly, employees earning more than £12,570 per annum will be affected by the reduction in Class 1 NICs. Employees earning less than £12,570 per annum are not affected by the rate cut as they do not pay National Insurance.
Self-employed workers with annual profits of more than £12,570 will be affected by the reduction in Class 4 NICs.
The reduction of both employee and self-employed rates of NICs will take effect from 6 April 2024.
This measure is a further reduction to employee NICs following the Autumn Statement 2023 announcements that Class 1 employee NICs were reduced from 12% to 10% from 6 January 2024. Taken together, these measures would result in a monthly paid employee earning around £50,000 per annum paying over £125 less in NICs per month in the 2024/25 tax year compared to the start of the previous tax year.
At the Autumn Statement 2023, it was also announced that the main rate of Class 4 self-employed NICs was to be reduced from 9% to 8% from 6 April 2024. Today’s announcement takes this reduction further to 6%. A trader with profits of just over £50,000 will suffer £1,131 less in Class 4 NICs in the 2024/25 tax year than the 2023/24 tax year.
The decrease in National Insurance rates should be placed in the context of the current freezing of the personal allowance and income tax bands. As more people are dragged into paying tax or paying higher rates of tax, some are still likely to be worse off even with the reduction in National Insurance rates. Overall, most employees earning £23,000 or more will save more in national insurance than they would lose in income tax, though the exact amounts will vary by salary. This measure also only applies to employed and self-employed workers which leaves some individuals (those with pension/dividend income etc) not being able to benefit from this tax cut.