MSE News

Autumn Statement: Workers to pay less in national insurance – but rate cuts don't offset the freezing of personal tax thresholds

Both employees and self-employed workers will pay less in national insurance from next year, Chancellor Jeremy Hunt has announced in today's Autumn Statement. Around 29 million workers are expected to benefit, though for many the rate cuts don't offset freezes to personal tax thresholds, which determine when you start paying each tax. Below is everything you need to know. 

Most employees will pay less in national insurance from 6 January 2024 – but this will be offset by the freezing of personal tax thresholds

National insurance contributions will be cut from 12% to 10% for around 27 million employees on earnings of between £12,570 and £50,270 a year. To find out how much tax you currently pay, and how this will change from next year, use our National insurance and income tax calculator.

This change will come into place from 6 January 2024, instead of at the start of the tax year in April as would typically be the case. The Chancellor says this means employees should start benefitting from the cut in their first pay of the year.

Currently, the basic rate of tax – the rate for national insurance and income tax combined – is 32%. This change will see it cut to 30%, meaning the average worker on a £35,400 salary will save £450 over the 2024/25 tax year.

However, both national insurance and income tax thresholds, which determine when you start paying each tax, are frozen until April 2028 – as announced by the Government last year – which will offset the national insurance cut for many. This is evidenced in this tweet from the Institute for Fiscal Studies:

In general, the freezing of tax thresholds creates a process known in Treasury jargon as 'fiscal drag'. To explain exactly what this means in practice, here's MoneySavingExpert.com founder Martin Lewis: "Imagine someone who currently earns £12,000 now. Because earnings do tend to increase each year, in a couple of years' time they'll earn £13,000.

"But because the thresholds are frozen, they will now start to pay 20% tax on some of their earnings. And in fact, what freezing the threshold does is that it means no matter what you earn, as your earnings increase, a bigger proportion of your earnings goes on tax. And that's how the Chancellor makes money from it."

Self-employed workers will pay less in tax from 6 April 2024

If you're self-employed, national insurance rules are a little more complicated for you than they are for employees, which is why the Government has announced two changes today in an attempt to simplify it. Here's what's happening:

  • The rate of so-called 'class 4' national insurance contributions (NICs) will be cut from 9% to 8%. This is the main rate paid on self-employed profits of between £12,570 and £50,270. The Treasury says around two million self-employed workers will pay less national insurance as a result of this cut. It says the average self-employed worker earning £28,200 a year will pay £350 less than they did this year.

  • Mandatory 'class 2' NICs will be scrapped, though you can choose to continue to pay them on a voluntary basis. Unlike class 4 contributions, this is a set rate – currently £3.45 a week (it will remain at this for 2024/25) – which you have to pay on earnings of £12,750 and above.

    You can also choose to pay it on earnings of less than £6,725 to gain access to certain benefits including the state pension. Those earning between £6,725 and £12,750 are entitled to the national insurance credits without having to pay the tax.

    While class 2 contributions will be scrapped from 2024/25, those earning £6,725 and above will continue to earn national insurance credits as they do now, while those earning less than £6,725 will still be able to make voluntary contributions.

It's worth noting that your NICs are paid on profits you make. This is calculated by deducting your expenses from your self-employment income, above a certain threshold.

How much you'll pay in NICs if you're self-employed

Yearly profit What you pay in 2023/24 What you'll pay in 2024/25
Under £6,725 £3.45 a week if you choose to £3.45 a week if you choose to

Between £6,725 and £12,569 Nothing – but you're still entitled to national insurance credits  Nothing – but you're still entitled to national insurance credits 
Between £12,570 and £50,270 9% + £3.45 a week 8%
Over £50,270 9% on everything earned between £12,570 and £50,270, 2% on everything above that 8% on everything earned between £12,570 and £50,270, 2% on everything above that

Some advanced national insurance rules are complicated. See the HM Revenue & Customs website for full rates.

Most self-employed people pay national insurance through self-assessment.

MSE weekly email

FREE weekly MoneySaving email

For all the latest deals, guides and loopholes simply sign up today – it's spam-free!