National Insurance Contributions (NIC)
Thresholds and rates (Table D)
NIC became very complicated in 2022/23: the thresholds and the rates changed twice during the year after Chancellor Sunak introduced an increase to help pay for social care following the pandemic, and Chancellor Kwarteng reversed that increase. Chancellor Hunt announced in the Autumn Statement that the rates and most thresholds will be fixed going forward to the end of 2027/28, and no further changes have been made in the Spring Budget.
The upper limits for employee and self-employed contributions remain aligned with the point at which 40% income tax is payable (£50,270 per year, or £967 per week), and are frozen at that level until the end of 2027/28. The Lower Earnings Limit and Small Profits Threshold have only been fixed for 2023/24.
As with the freezing of income tax thresholds, the freezing of NIC rate thresholds represents a tax increase as pay rises. However, the significance of the increase is complicated, because employees pay NIC at 12% up to the Upper Earnings Limit of £50,270 and only 2% above that. The impact of the freeze is therefore proportionately higher on someone whose pay increases from £30,000 to £33,000 (£360 more in NIC) than someone whose pay increases from £60,000 to £66,000 (£120 more in NIC).
Because the Scottish higher rate of income tax applies at a lower level than in the rest of the UK (above £31,092 of taxable income in excess of allowances rather than above £37,700), Scottish taxpayers can be liable to higher rate income tax and full primary NIC on the same income (42% plus 12% in 2023/24).
Employment Allowance
The Employment Allowance reduces employers’ NIC for small businesses employing at least two people being paid above the Class 1 NIC Secondary Threshold, if the total employers’ NIC bill did not exceed £100,000 in the previous year. This remains unchanged at £5,000 for 2023/24.