At the moment self employed pay £3.45 a week in Class 4 NICs, which will be abolished from the new tax year on 6 April.
‘We will abolish the outdated and needlessly complex Class 2 self-employed NICs, reforming and simplifying the tax system,’ Chancellor Jeremy Hunt said.
In addition, from April 2024, Class 4 NICs for the self employed will be reduced from 9% to 8% and no self-employed person will have to pay Class 2 NICs, saving the average self-employed person earning £28,200 a year £350 in 2024-25.
Class 2 NICs will be reduced to 8% on profits between £12,570 and £50,270. The rate remains at 2% on profits over £50,270.
Evelyn Partners’ head of tax Sian Steele said: ‘These reductions in NI – costing the Treasury £9bn of the £172bn total take from this tax – will do little to counteract the rising tide of direct taxation that has taken the overall tax burden to the highest levels in 70 years,’ said
‘Hunt has favoured NI over an income tax cut for various probable reasons. NI is focused specifically on income from work, while income tax applies to a number of other sources of income, so an NI cut can be presented as an incentive and a reward to workers, while also having the benefit of being cheaper for the Treasury.
‘You do not pay NI on any private pension income or at all after state pension age, so that most retirees will not benefit from this cut – and so it can perhaps deflect some criticism from any perceived inter-generational “unfairness” of hiking the state pension by a hefty amount under the triple lock.’
The January change will also put companies and payroll managers under pressure to implement the changes in January payrolls.
Katharine Arthur, partner & head of private client, haysmacintyre, said: ‘With the cut targeted at employees and the self-employed, there are also questions over how much this actually helps businesses.
‘While it will mean slightly more money in people’s pockets, which should help the wider economy, employers will now need to cope with more complicated payrolls, applying the new rates before the start of the new tax year, and meeting the costs of the increased Living Wage.’
The Office for Budget Responsibility forecast these changes will increase the number of people in employment by 28,000 by 2028-29, alongside a further substantial economic benefit from those in work increasing their hours.
These tax cuts are part of the government’s long-term strategy for growing the economy and getting more people into work, ensuring that the UK has the labour market it needs for its future.