The Chancellor’s Autumn Statement revealed welcome news for Umbrella contractors and the self-employed with a lowering in National Insurance contributions.

Changes to Class 1 National Insurance (Umbrella employees):

• Class 1 National Insurance which is paid by employees (including Umbrella contractors as they are employees of the Umbrella company) to be cut from 12% to 10% from January 6th 2024.

 

Someone earning £25,000 a year will save in the region of £250 and someone earning £50,000 a year will be around £750 better off.

 

“This is really good news.  The change to Class 1 National Insurance takes effect in January so people will get the benefit from the beginning of the new year,” said Sam Mead, Head of Payment Solutions.

 

Changes to Class 2 and 4 National Insurance (Self-Employed, CIS contractors):

• Class 2 National Insurance which is paid by self-employed people earning over £12,570 is to be abolished from April 2024.
• Class 4 National Insurance, also for self-employed people and paid on profits between £12,570 and £50,270 is to be cut from 9% to 8% from April 2024.

 

Find out more about National Insurance for the self-employed here. The decrease in NICs will cost the Treasury £10.4bn by 2027/28.

On the downside, the lower National Insurance contributions may be largely cancelled out by the cost of living. This is because there was no increase to the personal allowance (the amount you can earn before tax is due) or the thresholds for income tax, which affects Umbrella workers, or dividend tax, which affects limited company contractors.

Interestingly, there was also an increase in the National Living Wage from £10.42 an hour to £11.44 an hour and will apply to workers aged 21 and above. Previously the NLW was applicable to those aged 23+.

And there was further good news for those approaching retirement age with an increase in state pension payments of 8.5% in line with average earnings.

Other key announcements

The Chancellor announced a package of measures around benefits, including an increase of 6.7% on Universal Credit; funding of £1.3bn to help people  with health conditions to find jobs; reform to the Work Capability Assessment to reflect the availability of home working opportunities following the Covid pandemic; and an increase in Local Housing Allowance rates to 30% of local rents.

Businesses that need to invest in new machinery and equipment can now benefit from a ‘full expensing’ tax break which allows them to deduct 100% of the cost from profits, thereby making a Corporation Tax saving.

How is the economy?

The Office for Budget Responsibility said the economy is forecast to grow slower than expected at 0.7% next year, not 1.8% as previously predicted.

The OBR doesn’t expect inflation to fall back to the Bank of England’s 2% target until 2025 which means interest rates will hve to remain high for some time to control inflation.

Need help?

If you need help in understanding what the Autumn Statement means to you, please get in touch with a member of our team on 01244 684700.