Autumn Statement tax cuts focus on National Insurance

There were a number of rumours about possible tax cuts following the publishing of October’s inflation figure. Among these were cuts to corporation tax, inheritance tax, and possibly National Insurance (NI). In the end, the only major changes announced were to NI and apply to both employees and the self-employed. However, the dates these changes become effective are different.

6 January 2024

From this date, the Primary Class 1 main rate will be cut from 12% to 10%. As with the mid-year changes we saw in 2022/23, this will require updates to payroll software so it will be important to ensure these have been facilitated before running the January payroll. Note that the rate for earnings above the Upper Threshold will remain 2%. The change will mean a similar hybrid rate is likely to apply to directors due to their annual earnings period. If the same logic is used as previously, the main rate will be 9/12 x 12% + 3/12 x 10% = 11.5%. However, as the payment thresholds have not changed, profit extraction strategies involving a small salary topped up with dividends will not be affected.

6 April 2024

From this date, compulsory Class 2 NI contributions (the fixed rate paid by the self-employed) will be abolished altogether. Those with profits between £6,725 and £12,570 will continue to get access to contributory benefits including the state pension through a NI credit without paying NI contributions as they do currently. It will still be able to be possible to pay Class 2 voluntarily, i.e. for those with profits below the small profits threshold who wish to accumulate contributory benefits. Additionally, the main rate of Class 4 NI will be cut from 9% to 8%.

The beneficial NI incentive for recruiting veterans has been extended until 2025.

Cash basis expanded

Another welcome announcement is that the cash basis for self-employed businesses preparing accounts will no longer be subject to a turnover limit – previously they would have to switch to the accruals basis once turnover exceeded £300,000. Additionally, businesses using the cash basis will no longer be subject to restrictions for deductions for interest payments or using losses, meaning they will be able to use sideways loss relief. These changes will be effective from 6 April 2024 - the first year that the tax year basis applies.