National Insurance Cuts – Major Reductions for Employees and the Self-Employed

In his 2022 Autumn Statement, the Chancellor announced that the National Insurance (NIC) thresholds would remain frozen until 2027/28. NICs have been a focus of recent policy changes. Since then, however, there has been a significant shift in rates — with two consecutive cuts designed to boost take-home pay for employees and the self-employed.

Employees’ Class 1 NIC

In the 2023 Autumn Statement, the Chancellor confirmed that the main rate of Class 1 NIC (paid by employees) would be reduced from 12% to 10%, effective from 6 January 2024.

Now, in the Spring Budget 2024, he has gone even further — announcing a second cut in the main rate, from 10% down to 8%, with effect from 6 April 2024.

This is a substantial tax reduction for employees, providing meaningful relief to those in work amid rising living costs.

Self-Employed Class 4 NIC

Similarly, the main rate of Class 4 NIC for the self-employed has also been reduced.
In the Autumn Statement, it was confirmed that the rate would fall from 9% to 8% from April 2024 — but in the Spring Budget, this reduction was deepened further to 6%, also from 6 April 2024.

Together, these measures represent one of the largest cuts to National Insurance in recent years, aimed at supporting the UK’s working population.

Who Benefits and by How Much

The changes deliver tangible savings for workers across the board:

• Employees earning above the Upper Earnings Limit (£50,270 per year) will save up to £1,508 per year.
• Self-employed individuals with profits above that level will save up to £1,131 per year.

These cuts are designed to offset the effects of fiscal drag — the stealth tax rise caused by the freezing of personal allowances and thresholds until 2027/28.

By targeting National Insurance rather than income tax, the government ensures that the benefit goes directly to those in work.
An income tax reduction would also have benefitted landlords and pensioners, who do not pay NICs, whereas these changes focus on the working population.

NIC Thresholds and Alignment

The Upper Earnings Limit for employees and the Upper Profits Limit for the self-employed remain aligned with the point at which 40% income tax becomes payable — £50,270 per year (or £967 per week).

These thresholds, along with the Primary Threshold and Lower Profits Limit, are frozen until 2027/28, as originally announced in 2022.

Impact on Scottish Taxpayers

Because the Scottish higher rate of income tax applies at a lower income level than elsewhere in the UK (from £31,092 of taxable income above the personal allowance, compared to £37,700 in England, Wales and Northern Ireland), some Scottish taxpayers will face a higher combined tax burden.

For 2024/25, Scottish taxpayers can pay 42% income tax plus 8% NIC on the same slice of income — a combined effective rate of 50%.

This underlines the growing divergence between Scottish and UK-wide tax policy, particularly for middle-income earners.

Summary of NIC Changes

In Context – Balancing the Tax Picture

While these NIC reductions offer genuine savings, they come alongside:

• The continued freezing of personal allowances and basic/higher-rate bands;
• A reduction in dividend allowances; and
• Increases in corporation tax for businesses.

For company directors deciding how best to extract profits — through salary or dividends — it is now essential to review the combined effect of these changes.
The relative efficiency of each method will vary depending on personal income levels, company profits, and other sources of income.

How Merranti Can Help

At Merranti Accounting, we help individuals and business owners make the most of these new NIC savings within the wider tax landscape.

We can:

• Review your salary and dividend mix,
• Calculate your potential savings, and
• Ensure your NIC and income tax planning remain fully optimised.

Please contact us if you would like tailored advice on how these changes affect you or your business.

The Spring Budget 2024 is here!