Bookkeeping, Business, Business Support, HMRC, National Insurance, PAYE, Payroll, Pensions, TAX

The Autumn Statement and the effect on small businesses

December 5, 2023
9:38 AM

The government has announced a cut to the main rate of Class 1 employee NICs from 12% to 10% from 6^th January 2024 and a cut to the main rate of Class 4 self-employed NICs from 9% to 8% from 6th April 2024. It has also announced that no one will be required to pay Class 2 self-employed NICs from 6^th April 2024. Details of this change are:

from 6^th April 2024, self-employed people with profits above £12,570 will no longer be required to pay Class 2 NICs but will continue to receive access to contributory benefits including the State Pension
those with profits between £6,725 and £12,570 will continue to get access to contributory benefits including the State Pension through a National Insurance credit without paying NICs as they do currently
those with profits under £6,725 and others who pay Class 2 NICs voluntarily to get access to contributory benefits including the State Pension, will continue to be able to do so

The point to note is that the cut in NI affects the employee only. There is no saving for employers.

The increases in the National Living Wage from April 2024 will inevitably increase costs for those businesses employing staff to whom these rates apply. The increase from £10.42 p.h. to £11.44 p.h.is a 9.8% increase and the age banding has changed so that these rates now apply to those 21 and over (was 23 and over). There are even more substantial increases for younger employees – ranging from 14.8% to 21.2%!

For an employee working 37.5 hours per week on minimum wage, this increases the weekly pay by 37.5*1.02 =£38.25 per week or £1989 p.a. increase Add to that the employers NI at 13.8% = £274.48 and workplace pension contribution of 3% = £59.67 and the total additional costs for just that one employee increase by £2323.15!

The knock-on effect is that the government will take a further 20% of the basic increase into their coffers (£1989 * 20% = £397.80) as well as the extra NI, so the tax take actually increases. If you would like to know the overall effect on your business please contact us and we will “crunch the numbers” for you .