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Office AccountingWEB Chancellor announces further cuts to NIC
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Chancellor announces further cuts to NICs

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Jeremy Hunt announced another 2% cut to national insurance contributions. It's bad news for struggling businesses as, once again, employers' national insurance is unchanged.

6th Mar 2024
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Some of this article might sound very familiar since the government’s biggest spring 2024 Budget announcement replicates another made less than four months before.

Once again, these changes are expected to benefit an estimated 29m working people.

However, if the November change implemented from January was anything to go by, most will not notice. That is partly because for many, the gain is largely offset by the fiscal drag from freezing personal allowances.

In addition, pensioners get nothing while, according to the Resolution Foundation, those paid below £27,000 or about £59,000 will lose out. Indeed, someone earning £16,000 will be £500 a year worse off.

Employees

In a move that the Treasury estimates will cost £10bn per annum, in respect of paydays on or after 6 April 2024, the main class 1 rate of employee national insurance contributions (NICs) is to be cut from 10% to 8%, having been as high as 12% at the beginning of the year.

This reduction will only apply to annual earnings between £12,570 and £50,270, meaning that the maximum saving is £754 a year, while the average worker bringing home £35,400 will be £450 better off.

Those interested in additional examples are welcome to consult the government’s factsheet, which lists cases including a senior nurse, an average full-time nurse, an average police officer, a typical junior doctor, a cleaner working night shifts, an average teacher and, last but not least, a hard-working family with two very average earners.

It is emphasised that savings shown here as published by HM Government only relate to NIC and ignore the compensatory increases as a result of freezing allowances and thresholds.

Individuals will still be able to pay voluntary class 3 NICs should they wish to do so to fill gaps in their national insurance record and thereby enhance their state pension. The weekly class 3 rate will remain at £17.45 next year.

Self-employed

As a result of changes in the November Budget, the class 4 NIC rate for the self-employed was already set to move from 9% to 8% with effect from 6 April 2024. Instead, the rate will now reduce to 6% from that date.

Once again, the Chancellor was silent concerning contributions on earnings over £50,270. It is therefore assumed that the rate remains at 2%.

As those who followed the November budget will know, the requirement to pay class 2 NICs is to end on 5 April 2024, offering a saving of £3.45 each week. 

Although Jeremy Hunt then described this as an abolition, the situation is a little more complicated, since those with profits of less than £6,725 may still choose to pay voluntary contributions to ensure contributory benefits including a state pension. Anyone whose profits exceed £6,725 will automatically receive access to contributory benefits.

For those wishing to see more practical examples, the factsheet includes an example of a self-employed plumber.

Strategically, this staggered approach appears to be a big own goal. While a 2% cut to NICs in November followed by another 2% cut in March will be instantly forgotten, had there been greater forethought and a coherent plan, a 4% reduction at either point might have left many more prospective electors with a warm feeling for the Chancellor.

What hasn’t changed 

It is worth completing the picture by looking at some of the changes that did not take place.

There will be no changes to thresholds, meaning that the rate cut is, to a degree, offset by inflationary increases.

While the 12% NIC rate for earnings up to £50,270 is reducing, the 2% rate on higher earnings for both the employed and self-employed is untouched.

Finally, there have been no changes to the rate of the employer’s NIC. This is bad news for many struggling businesses and seems counter-intuitive given that, for the third time in under a year, the main thrust of the Chancellor’s Budget Speech was his burning desire to achieve growth.

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Replies (4)

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By Justin Bryant
06th Mar 2024 15:56

Finally it makes total sense to me why NI and IT are not merged. With targeted NI decreases you can benefit low paid, hard-working earners without also befitting rich, greedy BTL investors etc.

Thanks (4)
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By Rob Swan
06th Mar 2024 16:21

With all his (the Chancellor's) talk of "getting more people in to work", a cut in emplyers contributions would surely help enormously and possible increase overall tax revenue. I'd love to know how they calculated their decision - or didn't!

Thanks (1)
Replying to Rob Swan:
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By FactChecker
06th Mar 2024 17:44

Well yeah - and if "getting more people in to work" really was the primary aim, then he could have made a whole swathe of taxable 'unearned income' subject to NI ... so, for instance, deep sighs of relief from recipients of SP and other state benefits!

Thanks (4)
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By FactChecker
06th Mar 2024 17:36

Picky ... but "the average worker bringing home £35,400 will be £450 better off" is wrong.
Presumably author meant to say gross pay (or strictly NICable pay) of £35,400?
The average worker would be VERY happy if take home pay was £35,400!

Thanks (3)