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Significant Developments - National Insurance (“NI”) rates and thresholds

On 22 November 23, the Chancellor of the Exchequer announced the following changes to National Insurance.

• For the 2023/24 tax year, employees currently pay Class 1 NI at 12% on earnings between £12,571 and £50,270 and 2% on any earnings above that. Employers also currently pay Class 1 NI at 13.8% on their employees’ earnings year above £9,100.  

• On 22 November 23, the Chancellor announced that the main rate of employee Class 1 NI will  be cut by 2% from 12% to 10% with effect from 6 January 2024.

• Self-employed individuals pay Class 2 and Class 4 NI.. Currently, Class 2 NI is a flat rate of £3.45 per week where profits are above £12,570 and Class 4 NI is at 9% for profits between £12,570 and £50,270 and 2% on any profits above that. 

• On 22 November 23, the Chancellor announced that compulsory Class 2 National Insurance will be abolished from April 2024. Access to entitlements and credits will be maintained in full. Those who want to contribute voluntarily can still do so. 

• Class 4 National Insurance will be cut by 1% from 9% to 8% from April 2024.

Personal income tax rates

Income tax is charged at graduated rates, with higher rates of income tax applying to higher bands of income. Tax is charged on total income (from all earned and investment sources) less certain deductions and allowances. 

In Autumn 2022 it was announced that the current personal allowance and certain tax thresholds would be frozen until April 2028.

The main allowance is a tax free amount known as the personal allowance, which is GBP 12,570 in 2023/24. Most individuals can claim a personal allowance, unless they are claiming the remittance basis (see below) or their income is over GBP 125,140. (If your income is over GBP 100,000, your personal allowance will be reduced by GBP 1 for every GBP 2 that your income exceeds GBP 100,000. 

The net amount after allowances is usually referred to as an individual's taxable income. The graduated rates of income tax vary slightly depending on whether the income is from earnings or investments.

Income tax bands and rates for taxpayers resident in England, Wales or Northern Ireland are as follows:

* The 0% starting rate is for savings income only. If non-savings income (which takes up the first ‘slice’ of income) is above this limit, then the 0% starting rate will not apply.

Note that dividends are always treated as the top slice of income and will be taxed at an individual's highest marginal tax rate (see Dividend income in the Income determination section for rates specifically applicable to dividends). ‘Savings income’ is the next slice down, and other income (such as earnings) will be the lowest slice. The most common form of ‘savings income’ is interest, but certain other forms of income are also included.

**A dividend allowance applies to the first GBP 1,000 of an individual’s dividend income in 2023/24. The allowance operates as a 0% tax rate. From 6 April 2024, it is intended that the allowance will be reduced to GBP 500.

The dividend allowance does not reduce total income for tax purposes. Dividend income that is within the ‘allowance’ still counts towards an individual’s basic and higher rate limits.