Autumn Statement 2023: How will the changes to NIC affect workers?

Changes for Self Employed

Class 2 NIC

Class 2 NIC is a fixed weekly amount of £3.45, which is not affected by the level of profits of a sole trader, although not all sole traders were required to pay class 2 NIC.

There are two thresholds to consider, and these are, ‘Small Profits Threshold’ and the ‘Lower Profits Threshold’.
Where profits for a tax year are less than the ‘Small Profits Threshold’, there is no mandatory requirement to pay class 2 NIC, however, it is possible to voluntarily pay it. 

A person in this bracket would voluntarily pay in order to have the tax year count as a qualifying tax year for their state pension entitlement.

A person whose profits fell in-between the ‘Small Profits Threshold’ and the ‘Lower Profits Threshold’ would see that tax year qualify for state pension without having to pay the class 2 NIC charge.

A person whose profits exceeds the ‘Lower Profits Threshold’ would be required pay the class 2 NIC charge.

Future Changes

From 6 April 2024, the class 2 NIC charge will be abolished but only for those who would previously have been required to pay it. 

Therefore, those that were voluntarily paying class 2 NICs will still be required to pay the charge if they want to treat the tax year as a qualifying tax year for the state pension. 

The good news for individuals in this category is that the rate will not be increased in April 2024, and will remain at its current rate of £3.45 per week.

Class 4 NIC

Class 4 NIC is another type of NIC which the self employed suffer. This is differs from class 2 NIC in that there are no statutory benefits received from paying it. It is a mandatory charge based on profits which exceed the thresholds. In a similar style to class 1 NIC for employees, there are two rates. 

A rate of 9% on profits falling between the ‘Lower Profits Limit’ and the ‘Upper Profits Limit’ and a rate of 2% on profits exceeding the ‘Upper Profits Limit’.

Future Changes

From 6 April 2024, the main rate of 9% will be reduced to 8%. Therefore, for example, a sole trader with taxable profits of £25,000, they will save £124.30 in addition to the class 2 NIC saving.

Change for Employed

Class 1 Primary NIC

Around this time last year, the class 1 NIC rate was dropped from a high of 13.25% / 3.25% to its previous level of 12% / 2%. A lot can happen in a year, and the surprise this time is that the main rate of class 1 NIC that an employee suffers will be reduced to 10%. An average worker on £35,400 will save roughly £38 per month. This rate change will begin from 6 January 2024.

The rate change will not affect employers who see no reduction in the Class 1 secondary NIC rate.

Employer’s NIC on Employment of Veterans

Employer’s NIC relief will be extended by a year for employers who employ eligible veterans for the first 12 months of employment in a civilian role. 

This relief applies to earnings up to the ‘Veterans upper secondary threshold’ of £50,270.