What action should you take on the National Insurance changes in 2024?

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17 May 2024

In light of recent government announcements, 2024 brings about alterations in National Insurance for both employees and self-employed individuals. Haines Watts Payroll Manager, Alison Cox, considers these changes in her latest article.

In this piece, Alison takes look at these modifications and outlines the necessary steps that both employers and the self-employed should take immediately.

Here’s a breakdown of the points covered:

A snapshot of the National Insurance modifications
The workings of National Insurance for employees and self-employed individuals
Immediate actions for employers
The changes for self-employed individuals
Immediate actions for self-employed individuals

National Insurance modifications

Reduction in Rates:

The main rate of primary Class 1 National Insurance contributions (NIC) will be cut by 2 percentage points from 10% to 8% from 6 April 2024.

The main rate of Class 4 National Insurance contributions will also be cut by 2 percentage points from 8% to 6%. This is in addition to the reduction to the main rate of Class 4 previously announced at Autumn Statement 2023.

Impact on Employees and Self-Employed:

Around 29 million workers are set to benefit from the change, which will see contributions cut from 10% to 8% for employed workers and from 9% to 6% for self-employed workers.

The workings of National Insurance for employees and self-employed individuals

The amount of National Insurance (NI) you pay is determined by your employment status and income. Let’s break it down:

Employees:

For employees, the contribution amount is contingent on their National Insurance category and their earnings bracket. These contributions, known as Class 1 NICs, are deducted from the employee’s wages by the employer.

In addition to this, employers also make NICs payments based on the employee’s earnings, expenses, benefits, and lump-sum payments such as redundancy payouts.

Self-Employed:

For self-employed individuals with profits exceeding £12,570, two types of National Insurance - Class 2 and Class 4 - are currently paid. Class 2 is a flat rate of £3.45 per week.

Class 4, on the other hand, is profit-related, currently set at 9% for profits between £12,570 and £50,270, and 2% for profits exceeding £50,270.

Class 3 NICs are voluntary contributions made by individuals who wish to fill gaps in their contribution record to ensure they are eligible for full benefits, such as the state pension.

Please note that different National Insurance rules apply to limited company directors, share fishermen, and landlords.

Staying up to date with the constant legislative changes can be time-consuming and may divert your focus from what truly matters - running your business. Why not speak to our payroll experts today? Get in touch for a quote for payroll outsourcing services and let us handle complexities - so you don't have to. Leaving you to concentrate on running your business. Contact our office now, we're here to help!

Immediate actions for employers

Review Your Payroll Software:

A competent payroll software provider should be adequately prepared, particularly if you’re utilising cloud-based software, which can alleviate stress on your team.

Ensure that your provider has implemented all the required updates and that you’re operating with the most recent software version.

It’s worth noting that these changes have posed challenges for numerous businesses.

To lessen the administrative load, it’s crucial for businesses to maintain open lines of communication with their accountants or payroll providers. This will help them understand the advantages and disadvantages of the changes. It’s equally important to keep employees informed about these changes.

Contact our team of experts today, to discuss your payroll outsourcing requirements.

The changes for self-employed individuals

Previously, it was announced that Class 4 NICs for self-employed individuals would decrease from 9% to 8% starting 6 April 2024. However, in the 2024 Spring Budget, the Chancellor declared a further reduction to 6% from the same date.

From that date onwards, self-employed individuals with profits exceeding £12,570 are not obligated to pay Class 2 NICs, but they can still avail of contributory benefits, including the state pension. Those with profits between £6,725 and £12,570 will also maintain access to contributory benefits.

The government has stated that it has “effectively abolished” Class 2 NICs. However, those with profits below £6,725, and others who voluntarily pay Class 2 NICs, can continue to do so.

Various independent professional bodies have expressed concerns including; The Association of Independent Professionals and the Self-Employed (IPSE) about this phrasing. Warning that low earners might misunderstand that Class 2 NI is being ‘abolished’ and mistakenly stop paying it, potentially jeopardizing their entitlement to the state pension.

Immediate actions for self-employed individuals

Self-employed individuals may have to wait some time to reap the benefits of these changes.

Class 2 and Class 4 NICs are paid as part of your Self Assessment, so these changes will be reflected in the tax calculation for your 2024/25 tax return.

The benefits of these cuts won’t be seen until 31 January 2026, as Self Assessment payments, including National Insurance, are due by 31 January following the end of the relevant tax year.

Nevertheless, the new National Insurance rates could impact your financial situation, so it may be prudent to prepare for these changes by calculating how they will affect your overall tax liability.

If your profits are low, now might be an opportune time to reassess whether you need to make voluntary NICs to top up your state pension entitlement, especially if there are gaps in your National Insurance record.

You can check your state pension forecast to see how much you could potentially receive and when.

To conclude, we strongly encourage anyone seeking advice or assistance with their payroll outsourcing to reach out to a payroll professional. We have experts on hand to help guide you through these changes and ensure a smooth transition. Speak to us about outsourcing your payroll provider.