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Few surprises as Chancellor announces NIC changes

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As expected, the Autumn Statement featured significant changes to national insurance contributions, which will benefit millions of employees while offering little help to employers.

22nd Nov 2023
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As prefigured in the series of advance interviews and far from subtle leaks to the media, some of the biggest changes in Jeremy Hunt’s 2023 Autumn Statement surrounded national insurance contributions (NICs).

Depending on which part of the supporting press release you read, these changes will either benefit “29m working people” or “27m workers”. The subtle difference appears to be whether you add in the 2m self-employed when making calculations.

Employees

In a move that the Treasury estimates will cost £9bn per annum, the main class 1 rate of employee NICs is to be cut from 12% to 10%. Unusually, rather than waiting until the start of the new tax year, the change will be implemented in respect of paydays on or after 6 January 2024. Where employers are unable to change their systems in time, they are permitted to make the change at the earliest opportunity with appropriate adjustments in respect of overpayments.

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. 

Individuals will still be able to pay voluntary class 3 NICs should they wish to do so in order 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.

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Self-employed

There are two significant changes that will benefit self-employed workers.

First, the requirement to pay class 2 NICs will end on 5 April 2024, offering a saving of £3.45 each week. Although Jeremy Hunt 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 in order to ensure contributory benefits including to a state pension. Anyone whose profits exceed £6,725 will automatically receive access to contributory benefits.

His published calculations of savings could be regarded by some as misleading. They claim that this will be worth £192 per annum. However, that assumes a notional Consumer Prices Index increase, which is not being implemented. The true saving is £179.

Secondly, the class 4 NIC rate for the self-employed is to be reduced from 9% to 8% with effect from 6 April 2024. 

Including Hunt’s £192 relating to the “abolition” of class 2, the total benefit of these changes is worth £350 for the average, self-employed person earning £28,200. The maximum saving on this basis is £569 or, using the true class 2 figure, £556.

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

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

Key national insurance rates and thresholds from 6 April 2024

NICs primary threshold/lower profits limit £12,570 (annual)
Class 1 NICs main rate (from 6 January 2024) 10%
Class 4 NICs main rate 8%
Lower earnings limit £6,396 (annual)
Small profits threshold £6,725 (annual)
Class 2 rate (for those paying voluntarily) £3.45 (per week)
Class 3 rate £17.45 (per week)

Although it may not impact significant numbers of employers or employees, the employer’s NIC relief in respect of earnings up to £50,270, relating to the first year of civilian employment of eligible veterans, has been extended for a further year.

Interesting omissions

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

There were to be no changes to thresholds, meaning that the reduction in rates 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 is untouched.

Finally, there have been no changes to the rate of employers’ NIC, which will be very bad news for many businesses teetering on the edge, who would have welcomed some additional support.

Visit our dedicated Autumn Statement 2023 hub here to find all related articles from our experts.

Replies (3)

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By cereus77
22nd Nov 2023 17:04

And no commensurate reduction in the dividend tax which was introduced supposedly to “level the playing field” between employees and the many contract workers compelled to work via PSCs.

This tax was hiked last year when NICs were increased but not reduced when Hunt nullified most of Kwarteng’s cuts though retaining his policy of cancelling the recent NIC rise. Now the further reduction of employee NICs whilst leaving the dividend tax at an uncapped 8.75% across all dividend income adds insult to injury in my view.

Thanks (6)
By Paul D Utherone
22nd Nov 2023 19:58

What am I missing re the Class 2 change? The "Autumn Statement 2023: National Insurance Factsheet" [https://www.gov.uk/government/publications/autumn-statement-2023-nationa... says:

- From 6 April 2024, self-employed people with profits above £12,570 will no longer be required to pay Class 2 NICs, but will continue to receive access to contributory benefits including the State Pension.
- Those with profits between £6,725 and £12,570 will continue to get access to contributory benefits including the State Pension through a National Insurance credit without paying NICs, as they do currently.
- Those with profits under £6,725 and others who pay Class 2 NICs voluntarily to get access to contributory benefits including the State Pension, will continue to be able to do so. The weekly rate they pay will be frozen at £3.45 for 2024-25, rather than rising by CPI to £3.70.

The first two bullets cancel the Class 2 charge and give a State Pension/Benefits credit at no cost, but the third then introduced a voluntary charge to get Benefits credit for the lowest profit (or someone that makes a loss in a year)?

Thanks (1)
Replying to Paul D Utherone:
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By FactChecker
22nd Nov 2023 20:57

Plus ça change, plus c'est la même chose.

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