New National Insurance rate

It’s been a turbulent couple of years for National Insurance. In previous years the only adjustments to these rates were increasing the thresholds, but since April 2022, we have had three big changes to National Insurance rates.

In April 2022 the then chancellor of exchequer, Rishi Sunak increased the employee National Insurance contribution (NIC) rate to 13.25%. In September 2022, chancellor Kwasi Kwarteng reduced the NIC rate back to 12%. 

In a surprise announcement by Jeremy Hunt in November 2023, the employee National Insurance class 1 rate was reduced from 12% to 10%. Whilst such changes normally commence in a new tax year, this cut takes effect from 6 January 2024. Every employee who pays NIC will see an increase in their take-home pay from this month. 

As with the personal tax thresholds, you do not pay NIC on the first £12,570 of your gross pay. Once you earn this amount, the rate of NIC you pay will be 10% until you earn £50,270. On any earnings above the £50,270 threshold, the NIC rate reduces to 2%.

What does this look like in monetary terms?

1. An employee over the age of 23 earning the national minimum wage earns £20,319 (based on a 37.5 hour working week). Pre January 2024, they would pay £930 per annum in employee NIC - £77.50 per month. From 6 January 2024 the NIC will reduce to £775 per annum which is around £65 per month: a monthly saving of around £12.50.
2. An employee being paid the average salary in the UK earns £33,402 and would pay around £2,500 in employee NIC under the previous rate of 12% - £208 per month. From 6 January 2024 this will reduce to £2,083 which will be around £173 monthly: a monthly saving of £35.
3. An employee being paid £50,000 per annum pays around £4,492 in NIC under the previous rate of 12%. From 6 January 2024, this will reduce to £3,743 per annum - an annual saving of £749 or £62 per month. 

It has been an unsettling time with NIC changes and employers will feel this more than most, already being under pressure to ensure their payroll software is compliant throughout the tax year. For many, that pressure will have been heightened when Jeremy Hunt gave them only six weeks to implement the latest changes in time to ensure employees are paying the correct NIC from this month.
2024 is likely to be an election year and a Spring Budget has been announced for 6 March 2024. Will the chancellor bring in more changes for payroll teams to understand and implement? Only time will tell.