Significant changes to National Insurance were among the attention-grabbing announcements in Chancellor Jeremy Hunt's Autumn Statement, which he made in November 2023. And what was perhaps even more notable was that one of the changes would be introduced in January 2024, rather than April when the new UK tax year begins.
So, what National Insurance and income tax changes are being introduced in 2024 and what implications do they have for you? Let's begin with changes in England, Wales and Northern Ireland, before looking at planned income tax changes in Scotland for 2024/25.
Main rate Class 1 National Insurance cut from 12% to 10%
From 6 January 2024, employee Class 1 National Insurance contributions (NICs) on earnings between £12,570 and £50,270 were reduced by 2% to 10%. The 2% rate on earnings above £50,270 will remain unchanged.
This affects 27m people in the UK, giving them a welcome boost to their take-home pay packet according to the government. In 2024/25, according to HM Treasury, this is a "tax cut worth £450 for the average employee on £35,400 and means they will pay over 15% less NICs".
Furthermore, says HM Treasury: "This action will [reduce] the current 32% combined tax rate for employees (ie income tax plus National Insurance) paying the basic rate of tax to 30% – the lowest since the 1980s". This means: "An average worker in 2024/25 will pay over £1,000 less in personal taxes than they otherwise would have done" says HM Treasury.
- Salary Calculator Pro features a handy online tool so employees can find out how much less National Insurance they will pay.
Did you know? National Insurance was introduced in 1911 to support those who had lost their jobs or needed medical treatment. Later it was expanded to fund the State Pension and other benefits, as well as contribute towards funding the NHS.
Take control of your self-employed finances now!
For self-employed individuals, sole traders, or those with non-PAYE income, GoSimpleTax provides direct Self Assessment filing with HMRC, offering helpful hints and savings tips throughout the process. Let GoSimpleTax handle all calculations.
Class 2 National Insurance abolished from April 2024
Currently, Class 2 NICs are paid by self-employed people who earn more than £12,570 a year. However, from 6 April 2024, that will no longer be the case. Class 2 NICs are being abolished. However, self-employed people will still get access to contributory benefits such as the State Pension.
Sole traders with profits of £6,725-£12,570 will also continue to get access to contributory benefits via a National Insurance credit, without paying Class 2 NICs, as is currently the case.
The Small Profits Threshold (after which self-employed people start to receive National Insurance credits) will remain at £6,725. Those with profits below £6,725 and others who pay Class 2 NICs voluntarily to get access to contributory benefits including the State Pension, will continue to be able to do so. The weekly rate they pay will remain at £3.45 for the 2024/25 tax year.
Class 4 National Insurance cut from 9% to 8% from April 2024
Class 4 NICs on earnings between £12,570 and £50,270 will be also be reduced by 1% to 8% from 6 April 2024,. The 2% rate on earnings above the upper limit will be unchanged.
According to HM Treasury, the NIC changes will benefit two million people, saving the average self-employed person on £28,200 some £350 a year. "A typical self-employed plumber on £34,400 will be £410 better off as a result of these cuts", it states.
Which tax rates and thresholds will stay the same?
- The main income tax allowances and thresholds, main NICs thresholds and the inheritance tax nil rate bands won't change for 2024/25. As critics have been quick to point out, it means that as wages rise, more people in the UK will have to pay National Insurance.
- The NIC Class 1 primary threshold and Class 4 lower profits limit will remain at £12,570 (same as the Personal Allowance threshold).
- No changes either for the upper earnings limit and NIC Class 4 upper profits limit, which will remain at £50,270 until April 2028.
- The lower earnings limit (£6,396) and the small profits threshold (£6,725) will also remain the same in 2024/25.
- No changes were announced for employers' National Insurance contributions in 2024/25.
Other notable tax changes for 2024/25
- As announced before the Autumn Statement, the Dividend Allowance will be halved to £500 for 2024/25.
- The Capital Gains Tax annual exempt amount for individuals and personal representatives will be halved to £3,000 for 2024/25.
What about Scotland?
Changes in Scotland's 2024/25 budget will mean higher earners will pay more income tax. A new 45% band will be introduced for those earning between £75,000 and £125,140, while the top rate of tax, which is paid by those earning more than £125,000, will increase by 1% from 47% to 48%. The current threshold for paying the higher band (£43,663) won't increase.
The changes will give Scotland six income tax bands, three more than the rest of the UK. Someone earning £50,000 in Scotland will pay £1,542 a year more than they would if they lived in another part of the UK, while those earning £150,000 will pay £6,000 more, according to the Scottish Fiscal Commission.
The Scottish government estimates that 114,000 people will pay the new advanced tax rate for those earning £75,000-£125,000, with an additional 40,000 people paying the top rate because they earn more than £125,000 a year (source: BBC News). Reportedly, the income tax changes are intended to help plug a £1.5bn funding shortfall in Scotland's spending budget.
● The Scottish government has published a fact sheet detailing changes made to Scottish Income Tax for 2024 to 2025.
Copyright 2024. Sponsored post by Mike Parkes of GoSimpleTax - tax return software that can help you manage your self assessment.