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General short article 5

As far as National Insurance was concerned, the 2022/23 tax year was a tricky one featuring in-year changes to the primary threshold and in-year changes to the Class 1, 1A, 1B and 4 rates. This resulted in some strange numbers, with average rates applying for the purposes of Class 1A, Class 1B and Class 4 contributions. Average rates are also applied for Class 1 purposes to company directors who have annual earnings periods.

Hopefully, 2023/24 will be more straightforward. At the moment, the NIC landscape for 2023/24 looks as follows.

Employees and employers: Class 1

The Class 1 thresholds remain unchanged for 2023/24 and are as shown in the table below.

National Insurance thresholds for 2023/24
Threshold Weekly Monthly Annual
Lower earnings limit ยฃ123 ยฃ533 ยฃ6,396
Primary threshold ยฃ242 ยฃ1,048 ยฃ12,570
Secondary threshold ยฃ175 ยฃ758 ยฃ9,100
Upper earnings limit ยฃ967 ยฃ4,189 ยฃ50,270
Upper secondary threshold for under 21s ยฃ967 ยฃ4,189 ยฃ50,270
Apprentice upper secondary threshold ยฃ967 ยฃ4,189 ยฃ50,270
Veteransโ€™ upper secondary threshold ยฃ967 ยฃ4,189 ยฃ50,270
Freeport upper secondary threshold ยฃ481 ยฃ2,083 ยฃ25,000

 

Employees will pay contributions at the main rate of 12% on earnings between the primary threshold and the upper earnings limit and at the additional primary rate of 2% on earnings above the upper earnings limit. Employees with earnings between the lower earnings limit and the primary threshold are treated as paying contributions at a notional zero rate, giving them a qualifying year for state pension purposes for zero contribution cost.

The employer pays secondary contributions at the secondary rate of 13.8% on the employeeโ€™s earnings where these exceed the secondary threshold or, as appropriate, the relevant upper secondary threshold.

The Employment Allowance remains at ยฃ5,000 for 2023/24.

Employers: Class 1A

Class 1A National Insurance contributions are payable by employers only on most taxable benefits in kind, and also on taxable termination payments over the ยฃ30,000 threshold and taxable sporting testimonials over the ยฃ100,000 threshold. The Class 1A rate is aligned with the secondary Class 1 rate and is set at 13.8% for 2023/24.

Employers: Class 1B

Class 1B National Insurance contributions are also employee-only. They are payable on items included in a PAYE Settlement Agreement (PSA) in place of Class 1 or Class 1A liabilities that would otherwise arise, and also on the tax due under the PSA. As with Class 1A, the Class 1B rate is aligned with the secondary Class 1 rate, set at 13.8% for 2023/24.

Self-employed: Class 2

Class 2 contributions are how the self-employed build up entitlement to the state pension. For 2023/24, Class 2 contributions are payable at ยฃ3.45 per week where profits exceed the lower profits threshold of ยฃ12,570. Where contributions are between the small profits threshold of ยฃ6,725 and the lower profits threshold, the self-employed earner is treated as making contributions at a zero rate, securing a qualifying year for zero contribution cost.

Where profits are below the small profitโ€™s threshold, Class 2 contributions can be paid voluntarily. This is a cheaper option than making Class 3 contributions.

Self-employed: Class 4

The self-employed also pay Class 4 contributions on their profits. These contributions do not secure any benefit entitlement and are more akin to a tax.

For 2023/24, Class 4 contributions are payable at the main rate of 9% where profits are between the lower profits limit of ยฃ12,570 and the upper profits limit of ยฃ50,270, and at the additional Class 4 rate of 2% on profits over the upper profits limit.

Voluntary contributions: Class 3

An individual can pay voluntary Class 3 contributions to make up for gaps in their National Insurance record. For 2023/24, the Class 3 rate is ยฃ17.45 per week.

Partner note: SSCBA 1992, Pt. 1 (ss. 1โ€“19).

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