National Insurance: where are we now?

Spring Budget 2024 announced further cuts to National Insurance contributions (NICs) taking effect from the start of the tax year, 6 April 2024.

It’s the second cut announced, and impacts employees — including company directors — and the self-employed. We outline the effects here.

First of all, there’s no change for employers. They continue to pay Class 1 secondary NICs at 13.8%. Commentators have suggested that this is likely to continue to push employers towards engaging workers who don’t fall into the category of ‘employee’.

For employees, the main rate of Class 1 NICs falls to 8% from 10% from 6 April 2024, for earnings between £12,570 and £50,270. The 2% charge for employees on earnings above the upper earnings limit continues to apply. In summary, the position for Class 1 NICs is as follows:

• 12% to 5 January 2024
• 10% from 6 January 2024 to 5 April 2024
• 8% from 6 April 2024.

For company directors, the NICs position after the first round of cuts announced in the Autumn Statement 2023, became slightly more complicated because their contributions are calculated on an annual basis. This meant that for 2023/24, director liability was at a blended annualised rate of 11.5%. Fortunately, the Spring Budget change doesn’t create this issue, and directors’ NICs from 6 April 2024 are 8%, as outlined above.

The change does bring company directors more to think about, though, when it comes to remuneration strategy. The latest cut to NICs makes paying a bonus less expensive, for example. Crunching the numbers in your specific circumstances becomes all the more important.

The NICs cut also impacts the self-employed. The drop in Class 4 NICs, from 9% to 8%, set out in the Autumn Statement 2023, was already due to take effect from 6 April 2024. As a result of the Spring Budget, the rate becomes 6%, rather than 8%, from this date. There is also a 2% charge on earnings above the upper profits limit (£50,270).

In addition, from 6 April 2024, there is no longer a requirement to pay Class 2 NICs, though it’s still possible to make voluntary Class 2 contributions. This option means those with profits less than what’s called the small profits threshold of £6,725, can build entitlement to contributory benefits, including State Pension.

The effect of a cut in National Insurance is felt throughout the UK, and so can have particular impact for Scottish taxpayers, for whom the higher rate threshold is reached at £43,662 of net income, rather than £50,270, as in the rest of the UK. 

As always, we are on hand to provide any further advice needed.