The National Insurance (NI) will be reduced for both employees and the self-employed in 2024, marking the second cut this year. The recent announcement in the 2024 Spring Budget outlines a further two-percentage-point reduction. Here, we provide a simple breakdown of the key information regarding this tax and its changes.
Background
Earlier this year, millions of workers experienced increased take-home pay due to a reduction in National Insurance Contributions (NICs). In November’s Autumn Statement, the rate for employees dropped from 12% to 10%.
New Announcement
In the Spring Budget, Chancellor Jeremy Hunt revealed an additional two-percentage-point cut. The Treasury estimates this will save the average worker £450 annually, combining with the previous cut to total £900.
Understanding National Insurance
National Insurance is a tax on earnings for employees and employers. Introduced in 1911, it initially supported workers in need. Over time, it expanded to fund the state pension, other benefits, and contribute to the NHS.
Workers aged 16 and above must contribute to National Insurance, provided their earnings exceed specific thresholds:
- Employees: Over £1,048 per month (£12,570 annually)
There are four main types of National Insurance, and as of April 6, 2024, Class 2 contributions for the self-employed will be abolished.
| Class | Paid by |
| 1 | Payable by employees and employers |
| 2 | A flat rate payable for the self-employed* |
| 3 | Voluntary contributions paid by individuals to avoid gaps in their national insurance record, ensuring eligibility for benefits like state pension or maternity allowance |
| 4 | Payable on profits above a certain level by the self-employed |
| *Announced in the Autumn Statement 2023; Class 2 contributions will be abolished from 6 April 2024 |
Changes in 2024
The rate of National Insurance Contributions depends on employment status and income. Employees experienced a reduction from 12% to 10% in January 2024, and it will further decrease to 8% from the 6th of April 2024.
National Insurance Rates and Thresholds (April 2024):
Employed:
| Earnings | NIC Rate |
|---|---|
| £0 – £1,048 | 0% |
| £1,048 – £4,189 | 8% |
| Over £4,189 | 2% |
Employers: 13.8% for employees earning above the secondary threshold (£9,100 to £50,270 annually).
Impact on Contributions
Tables below show how recent changes affect monthly National Insurance contributions for different salary levels.
Monthly National Insurance Contributions (NICs) in 2024:
| Annual Salary | Monthly Gross Salary* | NICs 2021/22 | NICs Apr 2022/23 | NICs Jul 2022/23 | NICs 2023/24 | NICs 2024/25 |
|---|---|---|---|---|---|---|
| £20,000 | £1,667 | £104 | £112 | £82 | £74 | £62 |
| £30,000 | £2,500 | £204 | £222 | £192 | £174 | £145 |
| £40,000 | £3,333 | £304 | £333 | £303 | £274 | £229 |
Reasons for Changes
The government’s aim is to secure funds for social care and the NHS. Initial increases in the national insurance rate, planned to become a separate tax, were reversed in November 2022. The subsequent decision to slash national insurance in November 2023, under Chancellor Jeremy Hunt, aimed to stimulate the economy and provide relief to taxpayers facing a rising cost of living.
No Changes to Pension Thresholds:
One common query among our clients pertains to pension thresholds and percentages. It’s crucial to note that for the current tax year, there are no alterations to pension thresholds or percentages. This means that individuals can expect consistency in pension contribution requirements and entitlements, providing them with stability and clarity in their retirement planning.
Whether you’re a current pension scheme member or considering joining a pension plan, rest assured that the rules remain unchanged for the 2024/25 tax year.
Student Loans
In the upcoming tax year, the rates for student loans stay the same. However, there are some changes to the threshold amounts. For Plan Type 1, the threshold has increased to £24,990, and for Plan Type 4, it’s now £31,395.
Additionally, a new Plan Type 5 was introduced in 2023 for students starting studies from August 2023. Repayment of these loans isn’t likely to start before the 2026/27 tax year.
National Minimum Wage (NMW)/ National Living Wage (NLW) rates
Addressing the National Minimum Wage (NMW) remains a crucial task amid the ongoing challenges of inflation and the Cost of Living Crisis in the UK.
This year, the government has made significant changes. The previous age bracket of 21-22 has been removed, meaning that all employees aged 21 and over must now receive the National Living Wage (NLW). Additionally, the NLW rate has been increased from £10.42 to £11.44 per hour, as announced during the Autumn Statement.
Below is a table illustrating the new rates and how they compare to last year:
| Age | Change | Hourly rate |
|---|---|---|
| 21+* | ⬆️ | £11.44 |
| 18-20 | ⬆️ | £8.60 |
| Under 18 | ⬆️ | £6.40 |
| Apprentice under 19 or over 19 and in first year of apprenticeship | ⬆️ | £6.40 |
These adjustments aim to provide better wages for workers and address the challenges posed by the rising cost of living.
Statutory Leave Rates
From April 2024, statutory maternity, parental, and sick pay rates will increase for eligible employees.
For the first six weeks, Statutory Maternity Pay (SMP) and Statutory Adoption Pay (SAP) remain at 90% of average weekly earnings (AWE), followed by a weekly rate of £184.03 or 90% of AWE, whichever is lower.
Effective April 6th, Statutory Sick Pay (SSP) rises to £116.75 per week.
Here’s a summary:
| Statutory Payment | Change | Rate |
|---|---|---|
| Statutory Paternity Pay | ⬆️ | £184.03 |
| Statutory Maternity Pay | ⬆️ | £184.03 |
| Shared Parental Pay | ⬆️ | £184.03 |
| Statutory Bereavement Leave | ⬆️ | £184.03 |
| Statutory Adoption Pay | ⬆️ | £184.03 |
| Statutory Sick Pay | ⬆️ | £116.75 |
These changes aim to ensure fair compensation for statutory leave entitlements.
Maximising Savings with Salary Exchange
Even with the NI reduction, employees pay a large amount of NI contributions which can be further reduced by implementing Salary Exchange. Employer’s NI has not been reduced and it still stays at 13.8% so employers have a big opportunity to reduce their NI bill by implementing Salary Exchange.
For organisations seeking assistance with Salary Exchange and embracing technology, Husky enables businesses to navigate these changes seamlessly, ensuring compliance and maintaining a competitive edge in the evolving talent market. Husky’s cutting-edge technology automates the Salary Exchange process, saving time and reducing costs while guaranteeing regulatory adherence.
To explore these benefits further, organisations can visit https://huskyfinance.com/salary-exchange/ and schedule a consultation with the Husky team.
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