In his November Autumn Statement, the Chancellor Jeremy Hunt announced that from 6 January 2024, the headline rate of National insurance Contributions (NICs) would be cut from 12% to 10%, benefitting around 27 million employees paying Class 1 NICs.
The change means that no NICs are payable on the first £12,570 of earnings and employees will now pay 10% NICs on earnings between £12,570 and £50,270. Earnings above £50,270 will continue to attract NICs of 2%.
For the average worker earning £35,400 a year, this reduction will result in an annual saving of £456. Higher rate tax payers (those earning over £50,270) will see an annual saving of £754.
In addition, the Lower Earnings Limit – the point at which workers start to receive National Insurance credits – is frozen at £6,396. This supports low income earners by maintaining their access to NICs credits and is particularly helpful in maintaining State Pension entitlement without actually having to pay NICs.
Individuals will continue to be able to pay voluntary Class 3 NICs to help fill gaps in their National Insurance record to qualify for the State Pension, with the Class 3 rate being frozen at £17.45 per week for the 2024/25 tax year.
Benefits for self-employed workers
The main rate of Self-employed National Insurance (Class 4 NICs) paid by around two million people is being reduced from 9% to 8% from 6 April 2024.
In addition, from 6 April 2024, self-employed workers with profits above £12,570 will no longer be required to pay Class 2 NICs, but will continue to receive access to contributory benefits including the State Pension.
Self-employed with profits between £6,725 and £12,570 will continue to get access to contributory benefits 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, will continue to be able to do so. The weekly rate payable will be frozen at £3.45 for 2024/25, rather than rising by CPI to £3.70.
The Small Profits Threshold – the point at which the self-employed start to receive National Insurance credits – has been frozen at £6,725.
These measures for the self-employed will provide further support for low income to maintain their state pension entitlement without having to pay NICs.
Origen’s view
Now that there is extra income received each month, it’s an ideal time to consider opportunities to save and support your future plans.
- With Capital Gains Tax allowances reducing from £6,000 to £3,000 from April 2024, ISAs and Pensions have become even more attractive.
- Within an ISA, you can pay up to £20,000 each tax year, with the money free of Income Tax and Capital Gains Tax.
- Within a pension, you can pay in the lower of your earnings or £60,000. The money is then free of Capital Gains Tax; when accessed, 25% is tax-free and the rest taxable at your marginal rate.
- For an average worker earning £35,400, you can pay the extra £456 of NI you save into your pension with a total contribution of £570 going in after basic rate Income Tax relief.
- For a higher rate tax payer, you can pay the extra £754 of NI you save into your pension with £942 going in after basic rate tax Income Relief and a further £188 obtained as a higher rate Income Tax Relief via the tax return.
- If you have a salary-sacrifice arrangement as part of your workplace pension, you can also reduce your NI bill by giving up part of your salary for an employer pension contribution.
- If you are considering further savings, it is important to review affordability. In particular, considering that Income Tax allowances are frozen until 2028, this may put more of a strain on your income over the coming years.
Speak to your Origen adviser
If you have any questions about how the National Insurance cuts or any other tax changes may affect your financial plans, let’s talk it through together and make sure you feel comfortable that you’re in control of your financial plans.
Please contact your Origen adviser, or call our Client Services Team on 0344 209 3925* or email clientservices@origenfs.co.uk to arrange a call at a time to suit you.
* Calls are charged at your phone company’s basic rate. All calls are recorded for business purposes.
Please note that tax treatment varies according to individual circumstances as well as current legislation, which is subject to change. The value of investments and the income derived from them may fall and you may get back less than you invested. Past performance is not a guide to future performance. No investment is suitable in all cases and if you have any doubts as to an investment’s suitability then you should contact us.
CA11045 Expiry:01/2025
