Reduction to the main rates of primary Class 1 and Class 4 National Insurance contributions
Published 7 March 2024
© Crown copyright 2024
This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: [email protected].
Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned.
This publication is available at https://www.gov.uk/government/publications/changes-to-national-insurance-contributions-from-6-april-2024/reduction-to-the-main-rates-of-primary-class-1-and-class-4-national-insurance-contributions
Who is likely to be affected
All employees liable to pay National Insurance contributions, with earnings over £12,570, and all self-employed individuals with profits above £12,570 who are liable to pay Class 4 National Insurance contributions.
General description of the measure
This measure reduces the main rate of employee Class 1 National Insurance contributions by 2 percentage points from 10% to 8% from 6 April 2024.
For the self-employed, taking into account the one percentage point cut announced at Autumn Statement, the main rate of Class 4 National Insurance contributions will reduce by 2 percentage points from 9% to 6% from 6 April 2024.
Policy objective
The objective of this policy is to reduce the main rate of National Insurance contributions paid by employees between the Class 1 primary threshold and upper earnings limit, and to reduce the main rate of Class 4 National Insurance contributions paid by the self-employed between the lower profits limit and upper profits limit.
Background to the measure
This measure was announced at Spring Budget 2024 to reduce the main rate of employee Class 1 National Insurance contributions by 2 percentage points from 6 April 2024. It also reduces the main rate of Class 4 National Insurance contributions by 2 percentage points from 6 April 2024.
These changes build on changes announced at Autumn Statement 2023 that the main rate of employee Class 1 National Insurance contributions would reduce by 2 percentage points from 12% to 10% from 6 January 2024, and the main rate of Class 4 National Insurance contributions would reduce by one percentage point, from 9% to 8% from 6 April 2024.
Detailed proposal
Operative date
The reduction in the main rates of employee Class 1 and self-employed Class 4 National Insurance contributions will have effect from 6 April 2024.
Current law
Current law is included in sections 8(2)(a) and 15(3ZA)(a) of the Social Security Contributions and Benefits Act 1992 and their Northern Ireland equivalents, section 2 of, and paragraph 3(3) of the Schedule to, the National Insurance Contributions (Reduction in Rates) Act 2023, as well as Regulations 8, 21, 100 and 131 of the Social Security (Contributions) Regulations 2001.
Proposed revisions
This measure amends section 8(2)(a) of the Social Security Contributions and Benefits Act 1992 and the Northern Ireland equivalent to reduce the main primary Class 1 National Insurance contributions rate from 10% to 8% from 6 April 2024.
This measure also amends regulation 131 of the Social Security (Contributions) Regulations 2001 to reduce the Married Women’s Reduced Rate from 3.85% to 1.85%.
This measure also amends section 15(3ZA)(a) of the Social Security Contributions and Benefits Act 1992 to reduce the main Class 4 rate from 9% to 6% from 6 April 2024. Section 2 of, and paragraph 3(3) of the Schedule to, the National Insurance Contributions (Reduction in Rates) Act 2023 (amending the Class 4 main rate from 9% to 8% from 6 April) are, accordingly, repealed.
Summary of impacts
Exchequer impact (£ million)
| National Insurance contributions main rate cut | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 | 2028 to 2029 |
|---|---|---|---|---|---|---|
| Class 1 employee NICs from 10% to 8% from 6 April 2024 | 0 | -9,360 | -9,295 | -9,490 | -9,705 | -9,990 |
| Class 4 self-employed NICs from 8% to 6% from 6 April 2024 | 0 | -710 | -850 | -735 | -740 | -760 |
These figures are set out in table 5.1 of Spring Budget 2024 and have been certified by the Office for Budget Responsibility (OBR). More details can be found in the policy costings document published alongside Spring Budget 2024.
Economic impact
The macroeconomic impacts on the labour market were assessed by the OBR as part of Spring Budget 2024. In their March 2024 Economic and Fiscal Outlook (EFO), the OBR estimated that the reduction to National Insurance contributions will increase hours worked by new and existing employees, equivalent to an additional 98,000 full-time workers. The measure is expected to boost real household incomes by around 0.5% and increase potential output by 0.2% by the end of the forecast.
Impact on individuals, households and families
This measure will have a positive impact on individuals, households and families across the United Kingdom by providing a tax cut for around 29 million individuals in tax year 2024 to 2025.
As a result of this measure, an average employee on £35,400 will receive a tax cut of over £450 per year from April 2024[footnote 1]. An average self-employed person on £28,000 will see a tax cut of £310 a year and over 2 million individuals will benefit[footnote 2]. Actual impacts for individual taxpayers will vary according to individual circumstances.
This measure is not expected to impact on family formation, stability or breakdown. Customer experience is expected to remain broadly the same as this measure does not significantly alter how the majority of individuals interact with HMRC.
Based on previous similar changes, we expect the vast majority of employers to implement the changes to payroll in time for the 6 April 2024. In the event that an employer fails to update payroll software in time for their first payroll run after 6 April 2024 these employees should receive the benefit once employers have made the requisite payroll amendments. Although individuals should always contact their employer for refunds as a first port of call, there may be exceptional circumstances where individuals may need to apply to HMRC for a refund (for example, if their employer is no longer trading).
Equalities impacts
These changes to National Insurance contribution rates apply regardless of personal circumstances or protected characteristics such as sex, race or disability. Equalities impacts will reflect the composition of the population paying Class 1 primary and Class 4 National Insurance contributions.
Impact on business including civil society organisations
This measure is expected to have a negligible administrative impact on businesses.
One-off costs for businesses will include familiarisation with the change and changes to payroll software to implement the Class 1 changes. Depending on the type of payroll software employers use, impacts may include updating software or systems to reflect the change and updating returns and employee payroll records, the cost of which may be passed onto customers by payroll software providers.
Any employers unable to update their payroll software in time for the changes coming into effect from 6 April 2024 may be required to re-run their payroll retrospectively for past periods where higher National Insurance contributions rates had been incorrectly applied. Although individuals should contact their employer for refunds as a first port of call in all circumstances, there may be circumstances where individuals may need to apply to HMRC for a refund (for example, if their employer is no longer trading). There are not anticipated to be any other continuing costs.
Customer experience is expected to remain broadly the same as this measure does not significantly alter how employers interact with HMRC. This measure is not expected to affect civil society organisations.
Operational impact (£ million) (HMRC or other)
HMRC will need to make changes to IT systems to support safe implementation of this measure. These changes are expected to cost in the region of £300K.
There may also be impacts on other government departments, including Department for Work and Pensions (DWP), whose systems may need updating to reflect changed National Insurance contribution rates. Further engagement with departments is planned immediately following announcement.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be monitored through information collected from tax receipts.
Further advice
If you have any questions about this change, contact [email protected].
Declaration
Nigel Huddleston MP, Financial Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.