28th March 2024 Posted by - Alexander Accountancy
Self Employed? What the National insurance cuts mean to you
The Spring Budget further extended the national insurance cuts first announced in last year’s Autumn Statement, bringing good news to all self-employed businesses.
The rate of class 4 national insurance, which is added as part of your tax bill at the year end, has been further reduced with effect from 6 April 2024. It will now drop from 9% to 6% for profits between £12,570 and £50,270. The rate for profits over £50,270 will continue to be 2%.
If your trade profits for the 2024/25 tax year were £50,000, this rate reduction would give you a saving of £1,302 compared to the 2023/24 tax year. Of course, you will not necessarily feel this saving until you make your 2024/25 self assessment balancing payment on or before 31 January 2026.
As announced in last year’s Autumn Statement and further confirmed by the Spring Budget, class 2 national insurance will effectively be abolished. This will save £179.40 a year.
You do not need to do anything to benefit from either of these national insurance cuts. The reductions will be automatically applied to the calculation of your tax when your tax return is submitted.
If you are self-employed, your class 2 national insurance payments have been ensuring that you accrue entitlement to a range of state benefits, including the state pension. If your profits exceed £6,725 in 2024/25 you will continue to accrue entitlement to state benefits despite not paying class 2 national insurance. If your profits are less than £6,725, or you make a loss, you have the option of making class 2 contributions voluntarily, at £3.45 per week, so that you maintain your state benefit entitlement.
The government has announced that it will consult on how it will deliver the final abolition of class 2 national insurance contributions later this year. Once this happens there will likely be a new method or criteria for accruing state benefit entitlements. If you are unsure how these national insurance changes affect you personally, please feel free to get in touch and we will be happy to run through the changes with you. Call 01283 743851 or click here to send a message from our Contact Us page.
