NIC-E Present, Poor Packaging

One of the major announcements made by the Chancellor in his Autumn Statement was in relation to reductions in National Insurance, and indeed the complete abolition of Class 2 National Insurance.

The Chancellor started by explaining why he was going to reduce the burden for the self-employed. These were the people, he told us, that “literally kept our country running during the pandemic. The plumbers who fixed our boilers in lockdowns. The delivery drivers who brought us our shopping.” The Chancellor wished to recognise this contribution and as a result announced two measures to come into effect as of next April:

• The complete abolition of Class 2 NI – currently payable at £3.45 per week for the self employed with profits over £12,570. This was set to rise to £3.70 per week from April 2024, and the announcement gives a saving of £192 a year;

AND

• A reduction in the rate of Class 4 NI from 9% to 8% on profits between £12,570 and £50,270, which could give a saving of up to £377 a year.

That means that some self-employed workers could be up to £569 a year better off!

It is worth mentioning that payment of Class 2 NI gives entitlement to entitlements and credits and that measures will be put in place to ensure that those are unaffected by this change.

While the Chancellor did not mention “the accountants who kept adding up numbers” in his speech, as a self-employed accountant I also benefit from this reduction. My immediate thought was that while I did continue to work during lockdown, I am not sure that I deserve any better treatment than the employee accountants who did the same.

And it is fortunate that I feel that way – because I’m not going to get better treatment – or even the same treatment.

At this point those of you who are self-employed and are basking in the thanks from the Chancellor should perhaps stop reading.

For the announcements in relation to NI had not finished. Later the Chancellor said that a priority for this government was to allow ‘working families to keep as much of their hard-earned money as possible’ and so he is going to reduce employee NI on income between £12,570 and £50,270 from its current rate of 12% to 10% – giving a saving of up to £754.

What is more, this reduction will take effect from 6 January 2024, some 3 months earlier than the self-employed changes.

Standing back, all of the NI announcements are, of course,  good news and any reduction in tax (because that is what NI is) is to be welcomed.

However, telling a specific group that they are going to be rewarded when the reality is that many will be getting less (and getting it later) than their ‘employed equivalent’ may seem disingenuous.

So why might the Chancellor choose to reward one group more than the other? It may be worth noting that in his speech he mentioned that the employee NI changes will help 27 million people – whilst the self-employed NI changes cut tax for a mere 2 million. When it comes to potential votes, size matters.

As a footnote, some may recall that it was only last year that NI rates were increased by 1.25%, with the intention that this would then form the basis for a new Health and Social Care Levy. The 1.25% increase only lasted until 6 November 2022 and was then, along with the proposed Levy, scrapped.

However, to coincide with the 1.25% NI increase, the rate of income tax on dividends was increased – and that increase has not been reversed. For owner managers who extract funds both via salary and dividend the goalposts have moved once again.