In our previous articles, we mentioned some changes in taxation during the autumn statement.
For sole traders, a significant change is the partial cancellation of National Insurance contributions.
This will alleviate financial and tax pressures for approximately 2 million sole traders.
Class 2 National Insurance
As of now, sole traders with profits exceeding £12,570 annually are obligated to pay Class 2 and Class 4 National Insurance.
Class 2 National Insurance is currently a mandatory flat rate of £3.45 per week.
However, the Chancellor announced the decision to abolish Class 2 National Insurance payments in the autumn statement.
This change will be implemented from April 2024, relieving sole traders from this obligation.
The cancellation of Class 2 National Insurance could save sole traders approximately £192 per year.
Other National Insurance Changes
Other National Insurance changes include a 9% contribution for Class 4 National Insurance on profits between £12,570 and £50,270.
Additionally, there is an extra 2% contribution on profits exceeding £50,270.
Starting from April next year, the income tax rate for profits between £12,570 and £50,270 will be reduced to 8%.
It resulting in an average saving of £350 for sole traders.
Employee’s National Insurance
Employees will experience a 2% reduction in National Insurance contributions.
Unlike sole traders, employees will enjoy the benefits of this change earlier.
Currently, ordinary employees need to pay 12% National Insurance on income between £12,570 and £50,270.
From January 6, 2024, this rate will decrease to 10%, leading to an increase in income of approximately £400 for most employees.
This change will bring varying income benefits to around 27 million employees.
What to note?
If you are a sole trader, you may need to pay attention to certain details in your self-assessment tax return.
If you are an employee, be aware of changes in National Insurance rates when declaring your salary.
If you are our client, you need not worry about the changes.
Just inform our accounting team when there are changes in your annual profits or employee wages.