Reductions in employee and self-employed national insurance contributions ("NICs") and the abolition of Class 2 NIC were the key announcements. And from 2024/25, the Government will no longer require individuals earning more than £150,000 whose only source of income is income taxed through PAYE to file a Self-Assessment return.
Class 1 employee NICs are to be reduced by 2 percent from 12 percent to 10 percent from 6 January 2024. In a meeting with HMRC last week, Chartered Accountants Ireland flagged the short time period that software providers and payroll teams have to implement this 2 percent reduction which has come at an already very busy point in the tax year.
From 6 April 2024, the main rate of Class 4 NIC, which is applied to trading profits between £12,570 and £50,270, is being reduced by 1 percent from 9 percent to 8 percent. And Class 2 NIC is being abolished from 6 April 2024.
From the same date, self-employed taxpayers with profits above £12,570 who will no longer be required to pay Class 2 NICs, 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, again 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 will continue to be able to do so.
According to the main Autumn Statement publication, the cuts to Class 4 and Class 2 NIC taken together amount to a tax saving of £350 a year for the average self-employed person on £28,200 with some two million self-employed individuals expected to benefit.
The Government will also set out next steps on Class 2 reform next year. As part of this, the intention will be to protect the interests of the lower paid self-employed who currently pay Class 2 NICs voluntarily to build entitlement to certain contributory benefits.
The blind person’s and married couple’s allowances are being increased in 2024/25 to £3,070 and between £4,280 and £11,080, respectively. All other allowances remain frozen as announced at the Autumn Statement in 2022.
NICs rates and thresholds
The Government is freezing the lower earnings limit (“LEL”) and the small profits threshold (“SPT”) at 2023/24 levels in 2024/25. For those paying voluntarily, the Government is also freezing Class 2 and Class 3 NICs rates at their 2023/24 levels in 2024/25.
The LEL will remain at £6,396 per annum (£123 per week) and the SPT will remain at £6,725 per annum in 2024/25. The main Class 2 rate will remain at £3.45 per week, and the Class 3 rate will remain at £17.45 per week in 2024/25. This does not affect existing arrangements for payments of voluntary Class 2 or Class 3 NICs connected with previous tax years.
Employer NICs relief for employment of veterans
The Government is extending the NICs relief for employers of eligible veterans for one year into 2024/25. The relief means businesses pay no employer NICs on annual earnings up to £50,270 for the first year of a qualifying veteran’s employment in a civilian role.