National Insurance Contributions (NIC)
Thresholds and rates (Table D)
In his 2023 Autumn Statement, Jeremy Hunt announced a reduction in the main rate of Employees’ Class 1 NIC from 12% to 10% to take effect from 6 January 2024; in the Spring Budget he cut the rate further to 8% with effect from 6 April 2024. These were very substantial tax cuts, which the Labour manifesto promised not to reverse: there would be no increase in the rates of income tax, NIC or VAT ‘for working people’.
Not surprisingly, then, there has been a great deal of argument about a significant increase in Employers’ NIC (ERNIC). The Chancellor insists that this is a tax paid by employers which does not appear on the worker’s payslip; however, it increases the cost of employing people, so there is undoubtedly an indirect effect on the employee. If ERNIC were lower, the employer might be able to employ more people, or pay higher salaries.
The increases from 6 April 2025 are twofold: the rate of ERNIC will rise from 13.8% to 15%, and the Secondary Threshold – the level of pay above which ERNIC applies – will fall from £9,100 to £5,000. The amount of additional tax raised is estimated at between £23.7 and £25.7 billion pounds in each year from 2025/26 to 2029/30. The measure adds about £5 billion each year to the government’s own costs of employing civil servants.
Whether or not this is an increase in tax on working people, it will increase the temptation for businesses to seek to contract with self-employed people rather than employees. The rules on ‘disguised employment’ (commonly known as IR35) have been the subject of many HMRC investigations and court cases, and this is likely to increase their relevance.
Employment Allowance (EA)
EA allows businesses with Class 1 ERNIC of £100,000 or less in the previous tax year to deduct £5,000 from their Class 1 ERNIC bill (as long as there is more than one employee earning above the secondary threshold). This allowance will be increased to £10,500 and the £100,000 cap is removed with effect from 6 April 2025.
Class 2 NIC
Self-employed people have for many years had to pay flat rate Class 2 NIC, which have conferred entitlement to State pension, as well as profit-related Class 4 NIC. From 6 April 2024, Class 2 NIC are not required to secure benefits for anyone earning above the small profits threshold, which will rise in 2025/26 from £6,725 to £6,845. Anyone earning less than that can still pay Class 2 voluntarily (£182 in 2025/26) in order to maintain a full contribution record.