David Tattersall, Head of Client Relations at Handpicked Accountants, runs through the latest guidance on National Insurance contributions (NIC), including the changes in April 2024.

What are National Insurance contributions and who pays them?

National Insurance contributions are tax contributions made by employees, employers and the self-employed, used to fund public services and benefits, such as the State Pension.

It is mandatory to pay National Insurance if you’re 16 or over, and you are an employee earning more than £242 weekly from one job, or self-employed and making a profit of more than £12,570 a year for the 2024/25 tax year.

The class of National Insurance contributions you pay is determined by your earnings and employment status; employee or self-employed, and as an employer, you will make contributions based on how much employees are paid.

What are the different classes of National Insurance contributions?

There are different classes of National Insurance contributions, that include Class 1, 2, 3 and 4:

• Class 1 – If you are employed, you will pay Class 1 National Insurance contributions. As limited company directors are employed by their limited company, they are classed as an employee and can therefore make Class 1 National Insurance contributions.
• Class 2 – If you are self-employed and don’t pay through Self Assessment, you may pay Class 2 National Insurance contributions to fill your NIC record and therefore qualify for benefits.
• Class 3 - Voluntary contributions to fill a gap in your National Insurance contributions record to maximise access to full benefits and State Pension.
• Class 4 – If you are self-employed, you will pay Class 4 National Insurance contributions.

What were the National Insurance contributions changes in April 2024?

In the 2024 Spring Budget, two major changes to National Insurance contributions were announced; a reduction in Class 1 and Class 4 National Insurance rates, which includes:

• Class 1 NICs for employees cut from 10% to 8%
• Class 4 NICs for self-employed people cut from 8% to 6%

The reduction in the main rate of Employee NICs is estimated to benefit 27.6 million employees in 2024/25 and the average annual gain is estimated to be £303 for taxpayers who pay the basic rate of income tax, £646 for higher-rate taxpayers, and £705 for additional-rate taxpayers, according to the OBR.

The reduction in the main rate of Self Employed NICs is estimated to benefit 2.2 million self-employed people in 2024/25 and the average annual gain is estimated to be £235 for basic-rate taxpayers, £635 for higher-rate taxpayers, and £710 for taxpayers who pay the additional-rate.

What next for National Insurance contributions?

While an overhaul of tax measures is often part and parcel following the formation of a new government after an election, the Labour Party vowed that there are no planned changes to National Insurance contributions.

The OBR forecasts National Insurance contributions to raise £168.1 billion in 2024-25. This represents 14.8 per cent of all receipts and is equivalent to around £5,800 per household and 6 per cent of national income.

About the author

David Tattersall heads up the client function of Handpicked Accountants, an online directory of local accountants across the UK that have been tried, tested, and approved by the reputable Handpicked Accountants team.  

See also

Employment law developments in 2024

How to ensure that your company information is accurate: reporting and filing requirements

What you need to know about HMRC tax investigations

Find out more

Rates and allowances: National Insurance contributions (GOV.UK)

Images

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Publication date

11 July 2024

Any opinion expressed in this article is that of the author and the author alone, and does not necessarily represent that of The Gazette.