NIC for 2023/24
The 2022/23 tax year was a tricky one regarding NIC due to the in-year changes to the primary threshold and the Class 1, 1A, 1B and 4 rates.
These NIC changes resulted in some strange numbers, with average rates applying for 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.
In this blog you can find the summary of 2023/24 for the NIC landscape at the moment.
Employees and employers (Class 1)
The Class 1 thresholds remain unchanged for 2023/24 and are as shown below.
|Lower earnings limit||£123||£533||£6,396|
|Upper earnings limit||£967||£4,189||£50,270|
|Upper secondary threshold for under 21s||£967||£4,189||£50,270|
|Apprentice upper secondary threshold||£967||£4,189||£50,270|
|Veterans’ upper secondary threshold||£967||£4,189||£50,270|
|Freeport upper secondary threshold||£481||£2,083||£25,000|
Employees will pay contributions at the main rate of 12% on earnings between the primary threshold and the upper earnings limit, and 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 employee’s earnings where these exceed the secondary threshold or, as appropriate, the relevant upper secondary threshold.
The Employment Allowance remains at £5,000 for 2023/24.
Employers (Class 1A)
Class 1A National Insurance contributions are payable by employers only on most taxable benefits in kind, on taxable termination payments over the £30,000 threshold and on taxable sporting testimonials over the £100,000 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 £3.45 per week where profits exceed the lower profits threshold of £12,570.
Where contributions are between the small profits threshold of £6,725 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 profit 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 £12,570 and the upper profits limit of £50,270, 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 £17.45 per week.
What else founders do need to keep in mind this year? Read our A year ahead for SMEs: Tax Guide.