The UK Government has decided to reduce the rate of National Insurance contributions (NICs) for more than 29 million workers in the country.
The move was announced by Chancellor of the Exchequer Jeremy Hunt in the Autumn Statement 2023.
According to the statement, the main rate of Class 1 employee NICs will be cut from 12% to 10%, with effect from 6 January 2024.
This means that the average worker on £35,400 ($44,260) in the UK will receive a tax cut of more than £450 in the year 2024–25.
For Class 4 self-employed people, the main rate of NICs will be reduced from 9% to 8%, starting from 6 April 2024.
Currently, employees who earn more than £12,570 a year are required to pay 12% in NICs on their earnings of up to £50,270 and self-employed workers pay 9% in NICs, a Reuters report noted.
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The government has also decided to completely eliminate the “outdated” and “complex” Class 2 self-employed NICs in a bid to simplify the tax system.
According to the latest Autumn Statement, all these amendments together are expected to benefit more than two million self-employed individuals, allowing an average self-employed individual on £28,200 to save around £350 in 2024–25.
The new tax cuts are a part of the government’s long-term strategy to support economic growth and increase the number of people in the work system to prepare the UK’s labour market for addressing future needs.
The British Office for Budget Responsibility (OBR) has also forecasted that these changes will help boost the number of people in employment by 28,000 by 2028–29, the statement added.
According to Reuters, the latest cuts to social security contributions come after the British Government’s previously announced decision to freeze the earnings thresholds for National Insurance until April 2028.
This freezing of income thresholds is expected to push workers to pay higher amounts of National Insurance as their earnings rise, eventually raising more money for the government.