Government cuts NIC rates again for employees & self-employed

At the Spring Budget 2024, the Chancellor announced cuts to the rates of national insurance contributions (NIC) for employees and the self-employed for the second time in less than four months.  

Up to 5 January 2024, employees paid class 1 NIC at the rate of 12% on earnings between £12,570 and £50,270. This fell to 10% from 6 January 2024 and will fall to 8% from 6 April 2024.

Taken together, the two cuts in the rate give a maximum annual saving of £1,508 for the employee, before taking into account the impact of frozen thresholds. However, delivering this change in such a short timescale may be challenging for HMRC and payroll providers. Legislation to enact the change is expected to be introduced in the next few days.   

For the self-employed, the rate of class 4 NIC is reduced to 6% from 6 April 2024. Together with the reduction announced at Autumn Statement 2023, this is a cut of 3 percentage points on the 2023/24 rate of 9%.

It also follows the Autumn Statement announcement that most self-employed people will not need to pay class 2 NIC for 2024/25 and subsequent tax years. The government has announced that it will consult on how it will deliver class 2 NIC abolition later this year. 

In his speech, the Chancellor expressed his long-term ambition to reduce the impact of the double taxation imposed by NIC and income tax.  

ICAEW’s Tax Faculty repeats the comments it made at the Autumn Statement 2023: although these cuts, made as part of the Chancellor’s plan to make work pay, are welcome for employees and the self-employed, this measure will do little to reduce the incentive to hire workers off payroll, as the rate of employer’s NIC remains the same. The cost of employer’s class 1 secondary NIC at a rate of 13.8% will continue to provide an incentive for workers to be treated as not employed, whether hired directly or via an intermediary, such as a personal service company, under the off-payroll working rules. 

The Tax Faculty has long believed that the problem of off-payroll working could be permanently resolved by ensuring that the same amount of tax and NIC is paid across all sources of income. The tax and NIC liability should not vary materially depending on employment status or type of engagement. 

Further reading:

Spring Budget 2024 – Overview of tax legislation and rates, sections 2.1 and 2.2.   

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