Understanding the 2023 Changes to National Insurance Contributions
In the 2023 Autumn Statement, the Chancellor announced a reduction in the main rates of National Insurance Contributions (NIC). These changes impact both practice employees and self-employed GPs.
For employees, the change is effective from 6 January 2023. The current rate paid by employees earning between £12,570 and £50,270 is 12%. For an employee earning over £50,270, this will result in a reduced monthly NIC cost of approximately £60, which will be reflected in their higher monthly net pay. The NIC rate payable on earnings over £50,270 remains unchanged at 2%.
There is no reduction in the NIC cost of employment for employers. The rate of employers’ NIC remains unchanged at 13.8% on earnings above £758 per month. Class 1A and 1B national insurance, payable by employers on expenses and benefits provided to employees, also remains unchanged at 13.8%.
Businesses running payroll internally will need to ensure their software is updated to reflect these changes. This may require employers to take action to update their systems. If payroll is outsourced, checking that these changes are applied is advised. HMRC has confirmed that a minority of employers may not amend their payroll systems in time for the January payroll. These employers will rectify this in subsequent months, so employees will still receive the full benefit of the NIC cut.
GPs operating through a limited company should note the NIC rate for statutory directors’ pay will be averaged at 11.5% for 2023/24, reducing to 10% for 2024/25.
Despite the extra administrative burden, most employers will welcome the fact their staff will have more take-home pay without impacting practice income.
Self-employed individuals pay Class 2 and Class 4 NIC. Changes to these do not take effect until 6 April 2024. The Chancellor announced Class 2 NIC will be abolished from 6 April 2024. Class 2 is currently a weekly cost of £3.45 when earnings exceed £12,570. This reduces the annual NIC liability by £179.40 from 2024/25 onwards. The self-employed will still receive contributory benefits including the State Pension. Voluntary Class 2 NIC payments can continue for those earning below £6,725 a year.
The current Class 4 NIC rate is 9%. This will reduce to 8% from 6 April 2024. Class 4 NIC is due on earnings between £12,570 and £50,270. The rate for earnings over £50,270 remains unchanged at 2%. For a self-employed individual earning over £50,270, the NIC reduction from 6 April 2024 will be £377. The total NIC reduction, including the abolished Class 2 NIC, totals just over £550.
For more information, please contact Matthew Watson at matthew.watson@ballardsllp.com
Disclaimer. This article has been prepared for information purposes only. Formal professional advice is strongly recommended before making decisions on the topics discussed in this release. No responsibility for any loss to any person acting, or not acting, as a result of this release can be accepted by us, or any person affiliated with us.
