Chancellor of the exchequer Mr. Hunt announced last week a reduction in employee national insurance by 2p lowering it from 12% to 10%.
The national insurance decrease effects the main rate of national insurance also known as primary class 1 and will benefit around 27million workers.
For taxpayers with an average annual income of £35,400 this translates to a tax cut of over £450 per tax year.
In addition there will be reductions and reforms in taxes for self employed individuals class 4 NICs for the self employed will be reduced from 9% to 8%.
More good news for the self employed is that no self employed person will be required to pay class 2 NICs.
With the national insurance reductions the government aims to enhance the living standards of millions of employed and self employed individuals and serves as a reward for their hard work.
Reducing national insurance contributions will not result in any alteration to the funding of the National Health Service (NHS) or pension payments.
Importantly the provision of services provided by the NHS and government pension department will remain unaffected and will continue to be financed in the same manner as they are currently.
When does the national insurance saving start?
The class 1 national insurance savings for employees will be effective from 6 January 2024 but will not be backdated to the start of this tax year (6 April 2023).
The class 2 and class 4 national insurance updates for self employed individuals will take effect from the start of the 24/25 tax year (6 April 2024).
Do I have to claim the national insurance reduction?
No, you don’t need to apply or make a claim for the reduced national insurance rates. Your employer will make changes to their payroll and will automatically use the new NI rates when paying you from January 2024.
For self employed individuals HMRC will automatically implement the new class 4 rate and class 2 changes through self assessment and will reflect this in your self assessment bill.
Employee national insurance cut from 12% to 10%
The class 1 national insurance main rate is being cut from 12% to 10% for employees under PAYE from 6 January 2024.
The reduction of the employees national insurance main rate has an impact on earners throughout the pay scales. We give some examples below:
PAYE salary of £20,000 gross you’ll save around £148.60.
PAYE salary of £35,400, you’ll save around £450.
PAYE salary of £55,000, you’ll save around £754.
PAYE salary of £65,000, you’ll save around £754.
A family with two people both earning an average salary of £35,404 will have a combined saving of around £900.
Self employed class 4 national insurance cut from 9% to 8%
Starting from the 24/25 tax year (not in January like the class 1 reduction) the class 4 national rate will be cut by 1p from 9% to 8%.
Reducing the class four and stopping class 2 completely is expected to benefit approximately 2 million self employed people.
The reduction in taxes for both class 4 and class 2 results in a reported average yearly tax saving of £350 for the typical self employed individual earning £28,200 in the 2024/2025 tax year.
Self employed class 2 national insurance
Starting from April 6 2024 individuals who are self employed and have profits exceeding £12,570 will no longer have the obligation to pay class 2 NICs.
Individuals with earnings ranging from £6,725 to £12,570 will still be eligible for contributory benefits like the state pension without having to pay national insurance contributions just as they currently do.
Individuals who have profits below £6,725 (also known as the small profits threshold) and those who choose to pay class 2 NICs in order to access contributory benefits will still have the option to do so.
The voluntary class 2 contributions weekly rate will be kept at £3.45 for the year 2024-25 instead of increasing to £3.70 based on the CPI.
Do I get a national insurance refund?
No, you don’t get a class 1 refund of national insurance because the reductions are being applied from January 2024 only and not backdated to an earlier date.
Has income tax been reduced?
The income tax rates and thresholds have not been changed in the autumn 2023 statement and remain currently remain frozen until 2028.
Chancellor Jeremy Hunt unveiled his ‘Autumn Statement for Growth’ with the aim to strengthen the economy by implementing measures that would stimulate growth, increase productivity, and encourage business investment.
As reported by the Office for Budget Responsibility the reduction of 2p in national insurance will only compensate for a quarter of the government’s personal tax increase measures (which includes the freezing of the personal allowance) implemented since 2021.
