NIC changes for the self-employed in 2024
Back in November, Chancellor Jeremy Hunt announced several changes to National Insurance Contributions (NICs) for 2024 in the Autumn Statement 2023.
Not only is the rate of Class 1 contributions paid by employees decreasing by 2% in January, but NICs will also be simplified for self-employed earners later in the year.
NICs are taken from employee salaries or via self-assessment for the self-employed, as a kind of tax that entitles the contributor to state benefits – including support and allowances for employment, maternity, bereavement, and retirement.
Self-employed earners currently pay two NIC classes, so the reforms coming in the new tax year should be welcome news – but do they offset frozen tax thresholds?
Here’s a summary of what’s changing in 2024 for the self-employed and how these NIC reforms could affect you as a self-employed worker.
Class 4 reduced contributions
Class 4 contributions are related to earnings, with the 9% main rate applicable on profits from £12,750 to £50,270.
From April 2024, the Class 4 NIC rate for the self-employed will be reduced to 8%.
An additional rate of 2% also applies for profits exceeding the £50,270 upper limit, but this will remain the same.
This 1% reduction is expected to affect around 2 million people in the 2024–2025 tax year, with potential annual savings of £100–£300+, depending on the tax bracket.
While the profit thresholds are staying the same, this means anyone whose self-employment profits exceed the upper threshold won’t have to pay more at the main rate instead of the additional rate.
Class 2 voluntary contributions
Class 2 contributions are paid at a flat rate (currently frozen at £3.45 a week) to earn entitlement to contributory benefits, like the State Pension.
From April 2024, self-employed people earning profits above £12,750 will no longer have to pay Class 2 NICs, but will still be entitled to contributory benefits.
This is estimated to benefit just under 2 million individuals in 2024–2025, with an average annual saving of around £180 each.
Self-employed earners with profits over £6,725 will also maintain their entitlement by receiving Class 2 NIC credits.
Those with profits below £6,725 can continue to make voluntary contributions to access contributory benefits, with the voluntary rate frozen at £17.45 a week.
Self-employed workers in this situation may decide to forego expense claims to meet the £6,725 income limit, but should consider the tax implications first.
Self-employment in 2024
According to the Office for Budget Responsibility (OBR), the changes to NICs could altogether reduce 2024–2025 tax receipts by £9.4 billion, benefitting around 2 million self-employed workers and 27 million employees.
However, this doesn’t negate the effects of freezing various tax thresholds until 2028. As inflation pushes people’s earnings over the frozen allowance limits, more people will become liable for higher rates of tax than before.
Unfortunately, as wages and prices increase, UK earners are likely to find themselves paying more tax on their income, even with the NIC reforms.
This is why it’s essential to stay on top of tax obligations, especially for self-employed people. For example, the previously reported threshold changes for Self-Assessment Tax Returns have since been scrapped – but the old threshold will still apply for the 2022–2023 Self-Assessment Returns due by the end of this month.