Employee National Insurance Cut
The Chancellor announced that the main rate of employee National Insurance (class 1 NIC) will be cut by 2% from 12% to 10%.
The Class 1 NIC rate will remain at 2% for earnings above £50,270 a year.
Importantly, this change will take effect from 6th January 2024 – not April as is usual for most announcements.
It is estimated that 27 million workers will now pay 10% on their earnings between £12,571 and £50,270 instead of the current 12%.
Workers earning more than £50,270 a year will receive a NIC reduction of £754. The cut is worth £450 a year to a worker earning £35,400.
What does this mean for business owners?
Crucially, there has not been a cut to employer’s NIC which remains at 13.8%.
Therefore, employers are unlikely to see much benefit from this reduction in NICs. Many employers would have hoped for a reduction in employer’s NIC to offset the significant increase in the National Living Wage.
For Directors, the annual NI rate will be 11.5% so the change announced in the Autumn Statement will make very little difference for Directors.
One question is whether employees should defer any imminent Christmas/End of Year bonuses until after 6th January? The reality is that the benefit from deferring any bonus payments to January will be extremely minimal for the employee, who will probably still prefer the bonus before Christmas!
How we can help – Outsource your payroll to Leonherman
Because this NIC change comes into force on 6th January 2024, it is very important that you update your payroll before this date or make sure your payroll provider will make the changes for you.
If you already outsource your payroll to us, then you can relax as we will take care of the change for you.
If you don’t outsource your payroll to us, then get in touch with us without delay and we can take this burdensome task off your hands.
Above all, our payroll team make sure that our clients’ employees are paid on time, correctly, accurately, and in line with legislation.
Our payroll team can also help you by…
- Applying the right tax codes (but we cannot change them unless told to by HMRC)
- Ensuring that the correct amount of tax is taken
- Ensuring that the right amount of National Insurance is taken
- Managing sickness pay
- Parental leave (such as maternity and paternity)
- Managing payroll queries
- Processing benefits
- Providing employee payslips
- Handling and reporting of deductions to HMRC
- Pension processing and reporting
- Keeping up to date with the latest legislation, case law and best practice
Self-Employed National Insurance
The Chancellor announced major reforms to National Insurance for the self-employed.
Self-employed individuals with profits of more than £12,570 a year pay two types of NIC: Class 2 and Class 4.
From 6th April 2024 – not 6th January – Class 2 National Insurance contributions will be abolished entirely – saving the average self-employed person £192 a year.
Importantly, Class 2 NICs currently provide self-employed people with access to a range of state benefits, including the State Pension.
From 6 April 2024, self-employed people with annual profits:
- Above £12,570 – will continue to receive access to the benefits.
- Between £6,725 and £12,570 – will continue to receive access to the benefits, via a National Insurance credit.
- Under £6,725 (or with losses) – will be able to continue to pay Class 2 NICs on a voluntary basis in order to maintain their access to state benefits. Class 2 NICs had been due to increase in 2024/25 but it seems that these will be maintained at the current £3.45 weekly level for those in this bracket.
In another announcement, from 6th April 2024, Class 4 National Insurance for the self-employed will also be cut by 1%.
Self-employed people will pay 8% on their profits between £12,571 and £50,270, instead of the 9% they pay at the moment. National Insurance on income and profits above £50,270 will stay at 2%.
Taken together these changes will result in an average self-employed person with profits of £28,200 saving £336 in 2024/25. However, they won’t see the benefit until 2025!
What does this mean for Self-Employed Business Owners?
One question we’re regularly asked is “Whether I should trade as a sole trader, partnership or Limited Company?”
After these changes announced by the Chancellor, especially the changes to Class 2 NICs, it is now less expensive to be self-employed and to operate as a sole trader or partnership. So purely from a tax perspective, it is cheaper to remain unincorporated.
What’s more, for Limited company Directors, dividend income attracts a 0% dividend allowance of £500 in 2024/25, down from the £1,000 allowance seen in 2023/24 so it is now more expensive to extract profits from a Limited company.
However, there are many good commercial reasons to operate as a limited company, particularly the limited liability provisions.
How we can help
We work with many start-up businesses. Some of these are unincorporated and some are incorporated. If you’re planning to set up a business, before you make any decision to trade as a sole trader or limited company, we advise you to get in touch with us to discuss the different ramifications of each choice.
National Living Wage to Increase
The Chancellor confirmed that the National Living Wage – also known as the national minimum wage – would increase to £11.44 per hour from April 2024, and in a major change, this will also apply to 21 and 22 year olds.
The announced pay rises represent a 9.8% increase for over-23s and a 12.4% jump for workers aged 22 and 21. The national living wage is currently £10.42 an hour for workers over 23.
This is great news for many employees. A full-time worker, aged 23, on the national living wage will get a pay rise of £1800 per year.
The National Living Wage will also increase for younger employees. For 18 to 20-year-olds it rises from £7.49 to £8.60 an hour. For under-18s it will rise from £5.28 to £6.40 an hour and the apprentice rate will go up from £5.28 to £6.40 an hour.
What does this mean for employers?
For employers, this is a mandatory pay uplift and will add to costs at a time when prices are already rising significantly.
Disappointingly for many employers, there isn’t an employers’ National Insurance cut so the government hasn’t given business owners much help to pay for the rise in staff costs.
Many business owners have also pointed out the rise in the national minimum wage is likely to increase wage costs throughout the business as more senior members of staff are unlikely to accept a similar level of pay as more junior employees.
How we can help:
These changes take effect from 1st April 2024. If you already outsource your payroll to us, then you can rest assured that we will take care of the wage payments for you. If you don’t outsource your payroll to us, then get in touch with us without delay and we can take this task off your hands.
Many business owners will also rightly be concerned about the cashflow implications of these changes. We’re still regularly surprised by the number of businesses who don’t have a clear and up to date cashflow forecast at a time when costs are rising.
If you’d like help preparing a cashflow forecast for your business, please get in touch with our accounting experts and we’d be happy to help.
The Autumn Statement 2023 – Contact Leonherman’s Accounting and Tax Experts
For more information about the key announcements made in the Autumn Statement 2023, read this summary of the key points by Leonherman’s accounting and tax experts and download this guide to each of the announcements.
If you have a question about any of the measures announced by the Chancellor in The Autumn Statement around how they might affect you or your business, please get in touch with us and we would be happy to help.
Call us on 0161 249 5040 or email: firstname.lastname@example.org
This material is published for client information. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. No responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by Leonherman.