National Insurance Contributions: changes you need to know

National Insurance Contributions: changes you need to know

National Insurance Contributions (NIC) were reduced in the latest Autumn Statement from the Chancellor. And it means employees and the self-employed will be paying less in NICs.

The cut may only be a couple of percentage points, but the Reduction in Rates Bill will be welcomed by many. Businesses and sole traders should be aware of the changes and when they take place. Here is the full statement and factsheet from the government.

NICs are not a tax as such – which we’ve looked at previously – although they are in all but name.

Changes for employees

Employees will see changes in their National Insurance rates from 6 January 2024. Their Class 1 NICs will reduce by 2% – from 12% to 10%. The reduction applies to annual earnings between £12,750 to £50,270, which means a maximum saving of £754 a year. It means an average earner – with a salary of £35,400 – will be £450 better off.

As the change will be implemented before the next tax year, some employers may not be able to amend their payroll in time. But they will be able to reimburse any overpayment of NICs in the coming months.

Those earning more than £50,270 will see no change.

Changes for the self-employed

Sole traders need to be aware of two important changes to NICs.

First of all, Class 2 NICs have effectively been abolished. It means that sole traders with profits above £12,570 are no longer required to pay Class 2 contributions from 6 April 2024. At the moment, they are paid by those with profits above the threshold to secure benefits such as state pension.

For those with profits between £6,725 and £12,570, there remains a National Insurance credit which ensures they can access benefits, such as state pension, without paying contributions. Anyone with profits below this threshold can opt to pay a weekly rate of £3.45 to secure their benefits.

Class 4 NICs are also being cut by 1% to 8% from 6 April 2024. This is only for those with earnings between £12,570 and £50,270.

National Insurance Contributions and your business

Employees NICs are paid by employers through the PAYE system. For the self-employed, they are paid via the Self Assessment tax return.

If you’re unsure about NICs then our expert team can help. Contact us today for details.