Autumn Statement 2023: A quiet day for individual taxpayers

With a focus on growth and rewarding effort and work, the main news for individuals is that the headline rates of national insurance contributions (NIC) will be cut by 1% for the self-employed and 2% for employees, aligning the overall rates more closely. With the thresholds currently frozen, however, the effect of fiscal drag however outweighs this cut for many.

Chancellor Jeremy Hunt announced changes to the two classes of national insurance that are paid by the self-employed, as well as to Class 1 paid by employees.

Class 2 contributions, which are currently set at £3.45 a week for anyone earning more than £12,570 a year from self-employment, will be abolished. This is alongside a 1% cut to the main rate of Class 4 NIC paid by the self-employed on profits between £12,570 and £50,270 from 9% to 8%. This will take effect from 6 April 2024, and will result in a maximum annual saving of just over £550.

For employees, the cut is coming in earlier (from 6 January 2024). The 2% reduction in the main rate of employee’s Class 1 NIC from 12% to 10% will be a saving for those earning over £12,570. This will reduce an employee’s national insurance bill by up to £754 a year.

For both employees and the self-employed, the rate on earnings above £50,270 is 2%, and this is unchanged, which is why the maximum savings caps out.

However, the Chancellor stopped short at cutting Class 1 NIC paid by employers.

The table below shows how much NIC a taxpayer will save a year at various income points, with the maximum saving occurring after reaching earnings or profits levels of £50,270:

The thresholds at which national insurance and income tax are payable, and higher rates of tax come in, remain frozen. This means that as incomes increase with inflation, more taxpayers are pulled into the tax net and the higher rate bands, and in real terms this fiscal drag outweighs the national insurance cuts.

The Chancellor focused on increasing take home pay for people in work by cutting the rate of national insurance. Reducing income tax rates would have reduced the tax liability from all sources of income, whereas the NI cut can be presented as an incentive and a reward to workers whilst also being cheaper for the Treasury.

National insurance is not charged on individuals broadly over state pension age, and not at all on private pension income, so most retirees will not benefit from this cut. This can perhaps deflect some criticism from any perceived inter-generational ‘unfairness’ of increasing the state pension by a hefty amount under the triple lock.

The differential cuts also bring the rates for employees and the self-employed closer together. In 2021, the Government noted that it was harder to justify the inconsistencies in national insurance contributions between people of differing employment statuses. This resulted in speculation of a possible alignment of national insurance rates paid by employed and self-employed individuals. Although nothing came of that, this narrowing of the gap is not completely unexpected.

Nothing came of the frenzied rumours of inheritance tax (IHT) cuts that preceded the statement, and income tax was similarly left alone, but there are some other points of interest to individuals around tax return filing.

Following feedback, the Government has modified plans for Making Tax Digital (MTD) for income tax. MTD for income tax will require some landlords and self-employed individuals to file quarterly updates with HMRC from April 2026. The changes are mostly technical but include a commitment to keep under review whether or not taxpayers with income under £30,000 should have to comply with this requirement, and confirmation that an end of period statement will not be required on top of the quarterly filings.

HMRC will also require some individuals to provide further information on their self assessment tax returns, from 2025/26 at the earliest. This includes shareholders in owner-managed businesses who will be required to provide the amount of dividend income received from their own companies separately to other dividend income, and the percentage share they hold in their own companies.

It was also confirmed that individuals with income taxed only through Pay As You Earn (PAYE) will not be required to file a tax return for tax years from 2024/25, regardless of income levels.

While a little more take-home pay will be welcomed by millions of workers, many will be hoping for more significant tax cuts. Toby Tallon, who specialises in advising Evelyn Partners’ entrepreneurs and private businesses, noted “there were rumours of a cut to NICs for workers in this Autumn Statement; with manifesto pledges to come there may be a temptation to make further cuts, or promises for cuts, in the run up to an election."