National Insurance rate cut takes effect for employees

The rate of National Insurance paid by employees fell from 12% to 10% from Saturday 6th January 2024, following the announcement of the cut in the Chancellor’s Autumn Statement last year.

For a typical salaried worker earning £35,400, HMRC expects this will equate to a reduction in tax of around £450 annually, and HMRC has produced an online calculator for workers to estimate how the cut will affect their National Insurance Contributions (NICs) and their upcoming payslips. Employer contributions are not affected by the change.

Class 2 NICs, paid by self-employed workers, are also unaffected by the January cut in the National Insurance rate; changes announced in the Autumn Statement will instead take place from 6th April at the start of the new financial year. The cut is expected to deliver a £350 annual reduction in tax for the average self-employed person on £28,200.

The reduction in the rate of National Insurance brings the combined tax rate on earnings (income tax and NI combined) to 30%, its lowest rate since 1980s. Despite this, the Institute of Fiscal Studies estimates that the reduction in National Insurance will be overshadowed by the continued freeze in the £12,570 income threshold below which no income tax or NI is paid, compared to had the threshold been increased at its planned levels. The effect of the continued freeze in the earnings threshold will be most felt by the lowest earning, who will see wages lifted in April as the National Living Wage rises to £11.44 per hour.

The cut in the rate of National Insurance is one a of a number of tax cuts announced in the Autumn Statement last year, alongside permanent full expensing for businesses.