In the recent Spring Budget announcement, Chancellor Jeremy Hunt unveiled significant reductions in national insurance contributions (NICs), continuing the trend set in the previous autumn statement. The central focus of these adjustments is aimed at benefiting UK employees, with the main rate of NICs for workers slated to decrease from 10% to 8% effective April 6, 2024. This move is expected to positively impact approximately 27 million workers nationwide. Additionally, modifications to national insurance contributions for self-employed individuals were also outlined.
National insurance operates similarly to income tax but with distinct differences. It is deducted from salaries or assessed through self-assessment for the self-employed, applying solely to earned income and not to earnings from investments or pensions. Employees are charged on a per-job basis rather than on their total income, with employers also contributing to national insurance. Moreover, it provides access to various benefits, including the state pension. The system comprises several classes tailored for employees, employers, and self-employed individuals, with some payments being voluntary and others mandatory. Contributions are made from the age of 16 until the state pension age.
Presently, employees earning over £242 per week pay 10% in class 1 national insurance contributions, with an additional 2% levied on earnings above £967 per week. Self-employed individuals with profits exceeding £12,570 annually pay class 2 contributions, alongside class 4 contributions contingent on their profit levels.
The upcoming changes include reducing the main rate of class 1 national insurance to 8% from April 6, 2024, alongside a decrease in the class 4 self-employed NICs rate from 9% to 6%. Additionally, class 2 self-employed NICs will be abolished.
The Treasury estimates that the average worker earning £35,400 annually will save over £900 per year due to the cuts. Similarly, a teacher earning £44,300 can expect to gain £1,250 annually. For example, individuals earning £20,000 will save £148.60 annually, while those earning £50,000 will save £748.60. Higher-rate taxpayers will see an increase in take-home pay by £754 annually.
National insurance contributions provide entitlement to various state benefits, including the basic state pension, employment and support allowance, maternity allowance, and bereavement support payment. However, the freeze on personal tax thresholds until 2028 means that not everyone will benefit equally from these national insurance cuts. The Resolution Foundation suggests that individuals earning up to £19,000 will still be worse off compared to if the personal allowance had been increased in line with inflation. Notably, pensioners won’t benefit from these national insurance changes.
