The biggest tax cuts announced by the Chancellor in his Autumn Statement were in NICs, where self-employed people will no longer pay Class 2 NICs at all from April 6, 2024. Class 4 NICs will be reduced from 9% to 8% from the same date, while Class 1 employee NICs – which apply to employees working under PAYE – falls from 12% to 10%.
The removal of Class 2 NICs means anyone who is self-employed and has profits above £12,570 will no longer need to pay Class 2 NICs, but they will still receive access to the contributory benefits associated with these payments in the past, such as the State Pension. Benefits will also still be accessed for those self-employed people with profits between £6,725 and £12,570 through a National Insurance Credit. Those who have profits below £6,725 can still make voluntary NICs if they want to.
Employees aren’t being left out of the Chancellor’s largesse either – Class 1 NICs is being cut from 12% to 10% from April 6, 2024. The NICs cuts overall will cost the Treasury around £9 billion and put an extra bit of cash into the pockets of around 29m workers in the UK.
Those earning £20,000 a year will keep an extra £149 per year if they are employed, or £254 per year if they are self-employed. This rises to £754 and £556 respectively, when both the employed and self-employed reach £60,000 according to expert calculations.
However, the effect of freezing tax thresholds more than wipes out the benefit from the cuts announced, as the overall tax take has risen to its highest level for 70 years. The cut to the additional rate threshold to £125,140 at the start of the current tax year, will earn £29.3 billion for the Treasury by 2027/28, according to the Office for Budget Responsibility – the equivalent of increasing the basic rate of income tax by 4p. So, it is a little like giving with one hand while taking with the other.
However, employers who hire Armed Forces veterans will be able to continue to claim relief for longer than expected on the secondary Class 1 NICs due on the wages of veterans for the first 12 months of their civilian employment.
HMRC said: “The relief applies to earnings up to the Veterans Upper Secondary threshold, which is £967 per week.”
To qualify for the employers’ relief, the veteran being employed must have been in the UK regular Armed Forces. The relief is available until April 5, 2025.
Despite these welcome cuts to NICs providing some benefit to workers, the rising cost of living is outpacing the benefits, based on calculations from the Office for Budget Responsibility which shows how much we will each be paying to cover ongoing debts, especially our mortgage debts.
The OBR forecasts that the cost of servicing household debt will rise from £73 billion in 2023 to £151 billion in 2026. This is higher than the peak of 2008, when the debt figure was £98.3 billion. The Liberal Democrats have calculated that the typical household will soon be spending £5,350 per year to “service” their debts, including mortgages which have seen rates rise significantly along with the Bank of England base rate over the past year.
Liberal Democrat Treasury Spokesperson Sarah Olney MP said: “This is a horror show for Brits. There is no end in sight to the mortgage nightmare faced by millions. Not only have household finances been clobbered by a barrage of tax rises, but now they face household debts not seen since the financial crisis.
“The blunt truth is that any tax cut before the election will be more than cancelled out by the mortgage bombshell.”
If you want to find out whether you are going to be better or worse off with the NICs changes, or you need some help or guidance to deal with rising mortgage costs, then please get in touch with us and we will be happy to help you.