After the chancellor announced a cut to National Insurance rates in his Autumn Statement last year, you may have noticed headlines announcing that many will pay less tax in 2024 as a result.
While the cut is of course good news for many who will now pay a lower rate of National Insurance on their income, it is only part of the story.
Read on to learn more about the change and why the chancellor’s updates to other taxes could lead to you paying more tax in 2024 and beyond.
The chancellor announced several National Insurance cuts in his Autumn Statement last year
In November, one of the key headlines from chancellor Jeremy Hunt’s Autumn Statement was a reduction in the rate of National Insurance, starting from 6 January 2024.
The main rate of employee National Insurance dropped by two percentage points, from 12% to 10%, on earnings between £12,570 and £50,270. According to Sky News, the average UK worker on a salary of £35,000 could save £450 a year as a result.
In addition, Class 2 National Insurance contributions (NICs) will be abolished from April 2024. These contributions are currently mandatory for self-employed people who earn more than £12,750 a year.
The chancellor also announced that, starting in 2024/25, the rate of Class 4 NICs – which self-employed people pay on earnings between £12,570 and £50,270 – will fall from 9% to 8%.
Combined with the abolishment of Class 2 NICs, the Guardian reports that the average self-employed person earning £28,200 could save £350 a year.
Frozen tax thresholds mean you could still pay more tax on your income and assets this year
While the cut to the main rate of National Insurance will mean that some people pay less tax on their income this year, frozen tax thresholds mean it could be a different story for many.
In his 2022 Autumn Statement, the chancellor froze or lowered several key tax thresholds:
- The Personal Allowance (the threshold above which you begin paying basic-rate tax) was frozen at £12,750 until 2027/28.
- The higher-rate tax threshold has been frozen at £50,270 until 2028.
- The threshold above which additional-rate tax is payable on earnings was dropped from £150,000 to £125,140. So, people who earn above £150,000 will now pay additional-rate tax on a larger proportion of their earnings.
- The Capital Gains Tax Annual Exempt Amount fell from £12,300 to £6,000 in April 2023, and will fall further to £3,000 in April 2024.
- The Dividend Allowance – the amount you can earn from dividends before Dividend Tax is payable – fell from £2,000 to £1,000 in April 2023, and will fall further to £500 in April 2024.
The freeze on tax thresholds means that as your income increases, you’ll soon be pulled into a higher tax band. This is sometimes called a “stealth tax” because it doesn’t increase the amount of tax you pay immediately, but may mean that you pay more tax in the future.
According to the Office for Budget Responsibility, the tax threshold freezes mean that in 2024/25, 2.2 million people are forecast to be brought into paying higher- and additional-rate tax. This demonstrates how fiscal drag can lead to you paying more tax over the long term.
Your planner could help you with careful tax planning to mitigate your bill
Tax planning can become complicated, especially if you receive income from multiple sources or are a high earner. So, consulting a financial planner to help you navigate this and potentially mitigate your bill might be sensible.
Your planner can help you to identify and make the most of the allowances and exemptions available to you so that you pay the correct amount of tax. They may also be able to advise you of the most tax-efficient way to draw your income.
As well as helping to mitigate your tax bill, this could enable you to save more towards your future goals.
Get in touch
If you’re concerned about how tax rules could affect you in 2024, we can help.
Please get in touch by emailing us at financial@barwells-wealth.co.uk or by phone on 01273 086 311.
Please note
The Financial Conduct Authority does not regulate tax planning.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
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