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Changes to National Insurance
Changes to National Insurance 758 513 Stepping Stones Accountancy

Changes to National Insurance

National Insurance (NI) is a government initiative where contributions are paid by employers, employees and self-employed. The payment is used for various state benefits and services such as the NHS (National Health Service), state pensions, benefits to be drawn by unemployed and other social security aspects.

Contributors of National Insurance are individuals who are employed or self-employed and earning above a specific income threshold. These contributors fit into 4 classes:

  • Class 1 – Employed and employers
  • Class 2 – Self-employed individuals
  • Class 3 – Voluntary contributions from individuals to cover any gaps in their NI which allows them to qualify for certain benefits
  • Class 4 – Extra contributions from self-employed because of an increase in profits

The contribution of NI is calculated based on earnings and employment status. For employees, payment is deducted directly from their salary by the employer via their PAYE (pay as you earn) system. Self-employed professionals will pay their contributions through their self-assessment tax return.

This year the Government have introduced several changes to NI contributions with the focus of reducing the financial burden to employees and self-employed. Here is a summary of the changes:

Class 1 NIC – For Employees

As of 6th January 2024, the rate of NIC for Class 1 which was paid by employees decreased from 12% to 10% on earnings between £12,570 and £50,270. It is estimated that the reduction will save employees up to £450 annually after their tax payments.

Class 4 NIC – For Self-Employed

On 6th April 2024 the main rate of NIC for Class 4 was reduced from 9% to 6%. Also, any self-employed individuals where profits are above £12,570 no longer need to pay Class 2 NICs but will retain access to contributory benefits such as state pension. For any self-employed individuals with profits between £6,725 and £12,570 they will receive NI credits.

There are several considerations to highlight:

  • It is important that employers update all their payroll systems to reflect these changes. This can involve changes with software updates (for online accounting tools) and administration adjustments.
  • All employees must be kept up to date with these changes (many will not be aware of them). The most popular method for this is to explain the reductions in NI on an employee’s monthly payslip.
  • There can be some special rules that apply for Directors, it is recommended to seek expert accountancy advice to understand these in more details.

In summary all these changes have been designed to help employees take more money home. Whilst also simplifying the tax process for the self-employed and helping to maintain their entitlement to benefits.

If you have any questions regarding national insurance contributions, then our team can offer both help and support. Please call us on 01173 700 079 or e-mail hello@steppingstonesaccountancy.co.uk.

You can also book a free 20-minute call with Yarka – https://calendly.com/yarka-ssa/20min

I Thought I was Employed | Am I Employed or Self Employed
I thought I was employed! 758 513 Stepping Stones Accountancy

I thought I was employed!

This article focuses on the importance of having the correct employment documentation in place. All characters are fictional for explanation purposes.

Jamie was working on behalf of XZY Ltd, all work activities were agreed verbally but no written and signed contracts were put in place. Jamie worked at home, in the offices of XYZ Ltd and at customer sites. He was provided with a laptop, business stationery and a company credit card but had no formal induction, no company handbook and did not have a dedicated desk space.

When initial discussions were held it was proposed that Jamie would become an employee and he was sent a payroll form by XYZ Ltd. However, Jamie did not return the completed form or any details regarding his preferred employment status. During the first 4 months various discussions were held about employment for an agreed working relationship but nothing was finalised, although a couple of e-mails were sent.

The last e-mail thread was what both Jamie and XYZ Ltd were adhering to, it stated that the salary would be based on a tiered commission basis but again no written agreement or formal employment agreed because Jamie was too busy to arrange it.

Although he did not have any written agreement Jamie believed he was employed by XYZ Ltd and had an official contract with them. However, when he contacted HMRC to request a copy of his P60 he was advised this was not possible. After several frustrating months Jamie was then advised by the HMRC that under the s8(1) Social Security Contributions (Transfer of Functions) Act 1999 he was classed as being self-employed. This meant he was not entitled to any of the employee benefits such as sickness pay, holiday pay, pension, etc.

There are some discrepancies between employment and tax law when it comes to employment status. However, the lesson is very simple; you are not employed until you have a written and signed contract.

If you need some help, advice or guidance in regard to being a contractor or an employee please feel free to call us on 01173 700 079 or e-mail hello@steppingstonesaccountancy.co.uk.

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