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Changes to National Insurance contributions – 6 January 2024

In his 2023 Autumn statement the Chancellor’s giveaway came in the form of a cut to National Insurance rather than Income tax cuts, benefitting employed and self-employed earners.

The result is that millions of workers are set to benefit in January by taking home more pay due to the cut in the national insurance rate from 12% to 10% (effective 6 January).

How much you will save due to this cut in the national insurance rate will depend on your salary and if you are self-employed or not. The Treasury estimates that the average employee will save approximately £450 a year.  If you are self-employed, you will also get a tax cut, but you will need to wait until April 2024.

What is national insurance?

National insurance is a tax paid on earnings by employees and employers, and by the self-employed on the profits, they make.

Introduced in 1911, it was set up to support workers who had lost their jobs or needed medical treatment. It was later expanded to fund the state pension and other benefits, and to contribute towards the NHS. The government can also borrow from the national insurance fund to pay for other projects.

All workers aged from aged 16 up to the age of retirement have to make national insurance contributions, provided you earn over a certain amount, depending on your employment status:

  • More than £1,048 a month (£12,570 a year) as an employee
  • More than £12,570 a year in profit when self-employed

There are four main types of national insurance:

Class 1 Payable by employees and employers
Class 2 A flat rate payable for the self-employed
Class 3 Voluntary contributions paid by people who wouldn’t otherwise have to pay, but want to avoid gaps in their national insurance record, and make sure they qualify for benefits such as the state pension or maternity allowance
Class 4 Payable on profits above a certain level by the self employed

You can find out more about National Insurance on the government’s own website, gov.uk

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