UK Chancellor Jeremy Hunt on 6 March unveiled the Spring 2024 budget, and confirmed widely expected cuts to National Insurance contributions (NICs). The chancellor suggested that future moves to reduce contributions further are intended.
Class 1 NICs apply to those with annual earnings between GBP 12,570 and GBP 50,270, currently at a rate of 10% (reduced from 12% in the Autumn 2023 statement with effect from 6 January 2024). For those earning above this level, the rate on all additional earnings remains at 2%.
From 6 April 2024, the main rate will drop a further two percentage points to 8%, which will generate a maximum saving of GBP 63 per month thereafter (GBP 754 per tax year).
Employers also pay NICs, currently at a rate of 13.8% on amounts over the lower threshold, but no changes have been announced so this rate will remain.
This further reduction will provide a welcome financial uplift for employees and may relieve some current pressure on employers to offer wage increases.
From 6 April 2024, the rate will drop a further 2% to 6%. For someone already paying Class 4 NIC, this represents a tax saving of GBP 20 for every GBP 1,000 of profit in the main Class 4 NIC band, up to a maximum of GBP 754 per year. The government has already abolished Class 2 NIC from 6 April 2024, so the combined changes will offer a welcome financial uplift for the new tax year.
However, there has been perceived abuse by some of these companies, and the government wishes to crack down on non-compliance in the umbrella companies sector. Following a 2023 consultation on tackling non-compliance in the umbrella company market, many had been expecting an update on further action in the budget.
This update will now take place on Tax Administration and Maintenance Day on 18 April 2024. New guidance will be published in summer 2024 to support workers and other businesses who use umbrella companies. We will continue to monitor developments and provide information and analysis in due course.
Caroline Harwood
BDO in United Kingdom
Class 1 changes
There are different types of NICs, known as “classes.” The type an employee pays depends on employment status and how much the employee earns.Class 1 NICs apply to those with annual earnings between GBP 12,570 and GBP 50,270, currently at a rate of 10% (reduced from 12% in the Autumn 2023 statement with effect from 6 January 2024). For those earning above this level, the rate on all additional earnings remains at 2%.
From 6 April 2024, the main rate will drop a further two percentage points to 8%, which will generate a maximum saving of GBP 63 per month thereafter (GBP 754 per tax year).
Employers also pay NICs, currently at a rate of 13.8% on amounts over the lower threshold, but no changes have been announced so this rate will remain.
This further reduction will provide a welcome financial uplift for employees and may relieve some current pressure on employers to offer wage increases.
Self-employment changes
For the self-employed, Class 4 NIC applies from an annual lower threshold of GBP 12,570 to an annual higher threshold of GBP 50,270, currently at a rate of 9%. This rate was due to reduce to 8% with effect from 6 April 2024. For those earning above this level, the rate remains at 2% on all additional profits.From 6 April 2024, the rate will drop a further 2% to 6%. For someone already paying Class 4 NIC, this represents a tax saving of GBP 20 for every GBP 1,000 of profit in the main Class 4 NIC band, up to a maximum of GBP 754 per year. The government has already abolished Class 2 NIC from 6 April 2024, so the combined changes will offer a welcome financial uplift for the new tax year.
Umbrella companies
Umbrella companies typically employ contractors who work on temporary contract assignments. The company manages payroll, deducting employment taxes and NIC, and manages payroll compliance and administrative tasks for a fee, typically paid by the contractor. Many provide a valuable service and are completely legitimate.However, there has been perceived abuse by some of these companies, and the government wishes to crack down on non-compliance in the umbrella companies sector. Following a 2023 consultation on tackling non-compliance in the umbrella company market, many had been expecting an update on further action in the budget.
This update will now take place on Tax Administration and Maintenance Day on 18 April 2024. New guidance will be published in summer 2024 to support workers and other businesses who use umbrella companies. We will continue to monitor developments and provide information and analysis in due course.
Caroline Harwood
BDO in United Kingdom