NIM01625 - Class 1 structural overview from 6 April 2009: 2023 to 2024 tax year only
National Insurance Contributions (Reduction in Rates) Act 2023
Background
The National Insurance Contributions (Reduction in Rates) Act 2023 (the Act) reduces the main rate of employee Class 1 National Insurance contributions by 2 percentage points from 12% to 10% from 6 January 2024.
The Act also provided that for the self-employed it will reduce the main rate of Class 4 National Insurance contributions by 1 percentage point, from 9% to 8%, and remove the liability to pay the weekly Class 2 flat rate for those with profits above £12,570 from 6 April 2024, while ensuring they will retain access to contributory benefits including the State Pension (as is currently the case).
Rates of primary Class 1 NICs for the 2023 to 2024 tax year
The Act affects how primary Class 1 NICs is calculated for the 2023 to 2024 tax year. Unless primary Class 1 NICs is being calculated for a director, the rates of primary Class 1 NICs are as follows.
There is no change to the additional rate of primary Class 1 NICs, the rate of secondary Class 1 NICs, the rate of Class 1A NICs or the rate of Class 1B NICs.
Where the earnings are paid on or before 5 January 2024:
- Main primary percentage – 12%
- Married women and widows reduced rate – 5.85%
Where the earnings are paid on or after 6 January 2024:
- Main primary percentage – 10%
- Married women and widows reduced rate – 3.85%
Directors blended rate
The main rate of primary Class 1 NICs that applies to a payment of earnings in the 2023 to 2024 tax year to employees depends on the date that the payment is made. However, because directors have an annual earnings period (or pro-rata as appropriate) then an average blended rate needs to be applied, as set out in the legislation.
The blended rate is calculated as 275 days at the rate which applied at the start of the tax year and 91 days at the rate which applied at the end of the tax year, for example, for the main primary percentage rate this is (275 / 366 x 12) + (91 / 366 x 10) = 11.5.
Where a director is paid using the alternative arrangements then their Class 1 NICs are calculated as if they were an employee, but the blended rates apply to the end-of-year reconciliation. Where the standard method is used then the blended rates apply for the whole of the tax year.
The blended rates for the 2023 to 2024 tax year are:
- Main primary percentage – 11.5%
- Married women and widows reduced rate – 5.35%
There is no change to the additional rate of primary Class 1 NICs, the rate of secondary Class 1 NICs, the rate of Class 1A NICs or the rate of Class 1B NICs.
See NIM12000 for guidance about Class 1 NICs for directors.
Annual maximum
The rules for calculating the annual maximum have been amended for the 2023 to 2024 tax year. Due to the in-year rate change for the 2023 to 2024 tax year for the purposes of the annual maximum at regulation 21(2) of the Social Security (Contributions) Regulations 2001 there is a blended rate for the main primary percentage rate, of 11.5%.
See NIM01251 for guidance about the annual maximum and NIM01279A for an example for the 2023 to 2024 tax year.