National Insurance Rates: Changes For 2024 Explained

Following a 2% cut in January, National Insurance (NI) rates have been further reduced, taking effect from 6th April 2024. Most notably, employees earning below a certain threshold will now pay a lower main rate of 8%. This is a change that brings big consequences for how small businesses pay their employees.

National insurance contributions (NICs) fluctuate so often that it can be hard to keep track of how they affect employee pay (and business margins). And, while men in suits promise the changes will benefit staff and businesses, a prolonged period of tax rises might offset savings for staff, and burden employers.

This guide breaks down the percentage rate change in real terms; outlining exactly how it will affect income for the self-employed and business owners. We’ll also explain why the rates are changing, and why future fluctuations are already on the horizon.

What are the new National Insurance rates?

National insurance is a tax paid on an employees’ earnings. It is used to fund future benefits, such as state pensions, as well as the NHS.

Employers contribute a portion of NICs to the government, and the employee pays another chunk through deductions from their salary.

The total payment is usually automatically calculated using payroll software. But to establish the amount each party owes, National Insurance has four classifications: Class 1, 2, 3 and 4.

New national insurance rates for employees (Class 1)

Class 1 NICs are deducted from staff payslips. They are based on the amount a worker earns each pay period, and only apply to earnings accumulated past the personal allowance threshold of £12,570.

These are the updated Class 1 national insurance rates for 2024, all of which are fixed until April 2028:

  • Employees who earn over £12,570 a year will pay national insurance on earnings above the threshold at a rate of 8%, down from 10%.
  • Employees who earn over £50,270 a year will pay national insurance on earnings above the threshold at a rate of 2% – this is unchanged.
  • Employees who earn under £12,570 will continue to not pay any national insurance as this is below the personal allowance. That said, they will still qualify for national insurance benefits like the state pension.
  • Employees who earn under £6,396 per year will pay no national insurance as this is below the Lower Earning Limit (so they will also not qualify for the state pension).

New national insurance rates for sole traders (Class 2, 3, and 4)

Sole traders are eligible to pay Class 2, 3, or 4 NICs. Crucially, the amount owed is determined by company profits, not personal income.

Because of this, self-employed entrepreneurs pay NICs through their Self Assessment tax return, not payroll.

Class 2 NICs

Change: Those with profits above £12,570 (also known as the Lower Profits Limit) used to be required to pay Class 2 NICs at £3.45 a week. This requirement is now scrapped from April 2024, although Class 2 sole traders will still qualify for the state pension.

All earners can still opt-in to pay Class 2 NICs to ensure they have enough qualifying years to claim the full state pension upon retirement.

Class 3 NICs

No change: There have been no changes announced for Class 3 contributions (a voluntary contribution used to plug gaps in a sole trader’s NIC record, like those who have been on maternity leave or working abroad). The rate for FY 2024/25 remains at £17.45 per week.

Class 4 NICs

Change: Employers are liable to pay Class 4 NICs if their profits are over the Lower Profits Limit (£12,570). Unlike Class 2 and 3 contributions, Class 4 NICs are not optional and are akin to corporation tax. In 2024:

  • For those who earn under £50,270 the tax on profits over the primary national insurance threshold will be reduced from 9% to 6% (not 8% as previously reported).
  • For those who earn above £50,270, the tax on profits will remain at 2%.

National insurance rates for employers

Employers must pay national insurance for all staff salaries above the Secondary Threshold (the minimum amount an employee must be paid before employer contributions to NI are triggered).

For FY 2024/25, the threshold remains unchanged at £175 per week.

This means as an employer, you are responsible for paying NICs on any amount an employee earns past £9,100 per year. At the moment, the rate is set at 13.8%.

Apprentices and workers aged under 21 have a higher Secondary Threshold, so apprentices are cheaper to employ overall. Business owners will only need to pay the 13.8% rate if workers in these groups earn over £4,189 per month.

Secondary contributions from employers

All of the above are known as ‘primary’ NICs. But, there are two ‘secondary’ employer-only contributions that some business owners may pay. However, these haven’t been changed in recent budget announcements.

In 2024, no changes are planned for:

  • Class 1A NICs – payable if the business offers employee benefits in kind (BiK) eg. company cars or private medical insurance. In FY 2024/25, it is charged as 13.8% of the total cost of the benefit provided.
  • Class 1B NICs – payable if the employer has a PAYE Settlement Agreement (a fixed yearly amount to cover small perks, like birthday lunches) with HMRC. In FY 2024/25, employers will pay an additional 13.8% of the total cost of the benefit.

How will the new national insurance rates affect take-home pay?

Under the latest NIC changes, workers will undoubtedly be asking HR teams or payroll provider what the new rates mean for payslips.

At first glance, it’s a positive result for staff. According to the Office for Budget Responsibility (OBR), the two percentage point cut will save £303 for taxpayers who pay the basic rate of income tax. Higher-rate taxpayers will reportedly save £646. Here’s an idea of how the new NI rates will affect wage brackets:

Salary 2023 (12%) January-April 2024 (10%) From April 2024 (8%) Difference 2023-April 2024
£15,000 £291.60 £243.00 £194.40 £97.20
£25,000 £1,491.60 £1,243.00 £994.40 £497.20
£35,000 £2,691.60 £2,243.00 £1,794.40 £897.20
£50,000 £4,491.60 £3,743.00 £2,994.40 £1,497.20
£75,000 £5,018.60 £4,264.60 £3,510.60 £1,508.00
£85,000 £5,218.60 £4,464.60 £3,710.60 £1,508.00
£100,000 £5,518.60 £4,764.60 £4,010.60 £1,508.00

Source: AJ Bell

So is it time to pop the champagne and start celebrating a pay rise for employees? Not quite.

The sting of the income tax freeze

While National Insurance rates have been lowered, in the 2024 Spring Budget, chancellor Jeremy Hunt confirmed that income tax rates will remain frozen for the foreseeable future.

The OBR is predicting that average UK wages will rise by 6.1% in 2024. With pay increasing, but income tax bands standing still, employees might find themselves earning less, not more, this year.

Example: if someone earning £35,000 had a pay rise in line with inflation, they would earn £38,150. This would move them into a higher income tax band and add £52 to their monthly tax bill overall.

82% of business owners plan to raise salaries this year. Managers must take care to warn employees how a promotion or pay rise might affect their overall salary due to tax loopholes.

Majority of employees to benefit

The majority of earners will pay the same rate of income tax, despite a wage rise, and should therefore benefit from the change. This is why Tom Adcock, Tax Partner at Gravita, argues the new rates should be celebrated.

“Millions of people will receive another boost to their pay packet in the midst of a cost of living crisis,” Adcock states. “Combined with the NI reduction that came into force in January, this could produce a saving for workers of up to £1,500 per year.”

The boost to employee pay cheques is good news for employers, many of whom have been bowing under the demands of workers for higher salary increases this year.

For employers, it may be disappointing that the rates for employer contributions remain at 13.8%. But, a pay bonus for employees should still lead to indirect benefits for organisations.

If the workforce feels more satisfied and motivated to stay in their jobs, this should result in improved employee engagement and, as a result, reduced turnover.

Will national insurance rates change again?

It’s been a wild ride for national insurance. In 2022, rates were raised by 1.25 percentage points to give the government more money to pay for social care and an overstretched NHS.

As households became squeezed by inflation and rising bills last year, however, national insurance rates were cut as part of Liz Truss’ brief tenure as Prime Minister.

Last November, Hunt slashed the rates again as part of a package of tax cuts in his 2023 Autumn Budget. He then cut them again in March 2024’s Spring Budget.

Ostensibly, this is to help people weather the cost of living crisis. Rishi Sunak has even hinted at losing national insurance altogether, claiming it is unfair to tax individuals ‘twice’ with both NI and income tax levies.

However, it’s worth remembering that 2024 is an election year. A more cynical reading of the new rates is that the Conservatives (who are unlikely to win the next election) are laying a trap for the next party in power.

Given the dismal state of the UK economy, the incoming party is unlikely to be able to afford the NI cuts. In the medium term, the new government will likely need to raise rates again to strengthen the public purse (cue criticism from the remaining Conservative opposition benches). We’ll update this page with any changes as they are announced.

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