Insights

National Insurance Changes

The Spring Budget 2024 announced further cuts to National Insurance Contributions (NICs), effective from 6 April 2024. This is the second reduction to NICs, and it affects employees, including company directors, and the self-employed. These changes are particularly relevant for financial planning for directors.

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The Spring Budget 2024 introduced additional cuts to National Insurance Contributions (NICs), taking effect from 6 April 2024. This marks the second time NICs have been reduced and has implications for employees, company directors, and the self-employed, particularly when reviewing remuneration and wider financial planning for directors.

Employers will continue to pay Class 1 secondary NICs at 13.8%. This may influence hiring decisions, as the cost difference between employees and non-employees remains a consideration. For employees, the main rate of Class 1 NICs will reduce from 10% to 8% on earnings between £12,570 and £50,270. The additional 2% charge on earnings above £50,270 will remain unchanged.

Summary of Class 1 NIC changes:

Company directors faced a more complex position following the first NICs cut announced in the Autumn Statement 2023, as director NICs are calculated on an annual basis. For the 2023/24 tax year, this resulted in an annualised rate of 11.5%. The Spring Budget simplifies this position, setting the rate at 8% from 6 April 2024. As a result, directors may wish to reassess how they extract income, as reduced NICs can make bonus payments more cost-effective as part of structured financial planning.

For the self-employed, the Class 4 NICs rate was already due to fall from 9% to 8% from 6 April 2024, as announced in the Autumn Statement 2023. The Spring Budget reduced this further to 6% from the same date. The 2% charge on earnings above £50,270 will still apply.

In addition, from 6 April 2024, self-employed individuals will no longer be required to pay Class 2 NICs. However, voluntary Class 2 contributions will remain available, which can be beneficial for those earning below £6,725 to protect entitlement to benefits such as the State Pension.

By proactively advising clients on utilising reduced NIC rates, structuring remuneration efficiently, and ensuring compliance with updated regulations, Scotia Financial supports businesses and directors in strengthening their financial planning strategies and adapting confidently to changes in NIC contributions.

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