Class 1 national insurance contributions (NICs) will be cut to 10% from 6 January 2024.
Currently, employees pay 12% NICs on earnings above £12,570, and 2% on earnings above £50,270. From next year, employees will pay 10% and 2% respectively. According to the government, which announced the move in the Autumn Statement, this means the average worker earning £35,400 will receive a tax cut in 2024-25 of more than £450.
The government is making the move to “reward work and sustainably grow the economy”.
Jeff Fox, principal consultant at Aon, said: “While the reduction in NI is welcome, it does have a less welcome pincer movement on salary sacrifice, an approach used by many UK firms. The increase in the national minimum wage and significant NI reduction will simultaneously make it harder for organisations to offer salary sacrifice to many people, while also reducing the savings achieved for those still able to participate.
“At particular risk are employers with lower-paid staff where flexible benefits and other salary sacrifice schemes are available. Organisations are urgently advised to review their benefit schemes to ensure they remain compliant, with the employee communications for upcoming renewals being a key priority.”
Christine Cairns, tax partner at PWC, added: “The cut to employee NI contributions functions as a significant and welcome 2% cut to income tax within the band affected. Its introduction three quarters of the way through the tax year is an unusual step that will be welcomed by those who benefit although it could cause an administrative headache for payroll operators.”
Clare Moffat, pensions and tax expert at Royal London, said: “Ultimately, NI is another tax to be paid, so any saving is a good one. While some will benefit from this reduction, we need to remember that leaving personal allowances and income tax thresholds frozen means some will end up paying tax when they weren’t before. Any NI reduction will only help those who are working and those under state pension age.”