The government has said that it won’t raise taxes for ‘working people’, with Labour’s manifesto promising it won’t raise rates of income tax, National Insurance or VAT.
No increases to workers’ National Insurance rates were announced in the Autumn Budget 2024. However, employers’ National Insurance is going up from April 2025, with the rate increasing from 13.8% to 15%. Find out what this could mean for employees and read about the previous National Insurance changes below.
» MORE: How National Insurance works
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National Insurance changes for employers
The Chancellor, Rachel Reeves, has announced that National Insurance will go up for employers from April 2025.
Employers are required to make separate National Insurance contributions on the earnings of their employees. These aren’t taken out of the employee’s pay.
Here’s what’s changing for employers from April 2025:
- the employers’ National Insurance rate is going up from 13.8% to 15%
- employers will start paying National Insurance on more of an employee’s earnings, with the threshold reducing from £9,100 to £5,000
- the employment allowance will go up from £5,000 to £10,500 – this allows smaller organisations to claim back National Insurance up to the allowance limit
Even though the government hasn’t increased National Insurance rates for workers, it’s likely that they’ll still be affected by this change.
Employers’ costs will increase because of the hike in National Insurance and minimum wages. This could lead them to hire fewer people or offer lower pay increases.
Previous National Insurance changes for workers
Workers have benefitted from a couple of cuts to National Insurance recently, introduced by the previous government.
The main National Insurance rate for employees is now 8%.
It was previously reduced from 12% to 10% in January 2024, then went down to 8% in April 2024.
Self-employed Class 4 National Insurance contributions were also cut on 6 April 2024, with the rate decreasing from 9% to 6%.
Self-employed Class 2 National Insurance contributions were scrapped entirely in April 2024, a change that had been in the pipeline since 2015.
On the surface, these cuts in National Insurance are good for workers. But it’s not always easy to figure out exactly how tax cuts like this affect you.
Lower National Insurance contributions should mean you keep more of your earnings. However, it’s important to consider these cuts in the context of the ongoing freeze on personal tax thresholds, which is due to end in 2028.
As wages go up but income tax and National Insurance thresholds remain frozen, more people will be pulled into paying tax for the first time or tipped into higher tax bands. This is known as ‘fiscal drag’.
The increase in employers’ National Insurance from April 2025 could also mean lower pay rises for workers, as employers grapple with rising costs.
What are the National Insurance rates?
The amount you pay in National Insurance is determined by whether you are employed or self-employed, and how much you earn.
Employed
Currently, the National Insurance rate for most employees is 8% on income of £12,570 to £50,270 a year (£1,048 to £4,189 a month). This rate was reduced from 10% on 6 April 2024.
The rate for any income over £50,270 a year (over £4,189 a month) is 2%.
You do not pay National Insurance on your first £12,570.
| Annual income | Class 1 NICs rate from 6 April 2024 | Rate of class 1 NICs from 6 January to 5 April 2024 |
|---|---|---|
| £12,570-£50,270 | 8% | 10% |
| Above £50,270 | 2% | 2% |
Self-employed
If you are self-employed, your National Insurance contributions are calculated using your annual profits.
Previously, you paid Class 2 National Insurance contributions at £3.45 a week if your self-employed profits were £12,570 or more.
But from 6 April 2024, those with profits above £12,570 aren’t required to pay Class 2 National Insurance – and you still have access to contributory benefits such as the state pension. Those who make voluntary contributions can carry on doing so at £3.45 a week. For example, you might choose to make voluntary contributions to ensure you have enough qualifying years to claim the full state pension.
When it comes to Class 4 National Insurance contributions, you pay 6% on earnings between £12,570 and £50,270 and 2% on profits above £50,270.
| Annual profits | Class 4 NICs rate from 6 April 2024 | Previous rate of Class 4 NICs |
|---|---|---|
| £12,570 to £50,270 | 6% | 9% |
| Above £50,270 | 2% | 2% |
Laura Suter, head of personal finance at investment platform AJ Bell, wrote to NerdWallet by email following the Autumn Statement in November 2023, saying: “The simplification of self-employed National Insurance helps to cut through some of the complexity of the tax system for those working for themselves.
“The decision to abolish the Class 2 band of National Insurance will save a worker £179.40 a year at current rates, or £192.40 if you base it on what rates would have increased to next year,” she explained.
Why did the National Insurance contributions rate change?
With a general election on the horizon and the Conservatives lagging in the polls, Jeremy Hunt was widely expected to cut taxes further in the Spring Budget.
While there were rumours that the government would cut income tax, some commentators believe Hunt may have chosen to reduce National Insurance because it costs the Treasury less and benefits employees. This aligns with the Chancellor’s previously announced plans to incentivise people to work.
How much National Insurance will I pay a year?
How much National Insurance you pay is tied to how much you earn.
If you’re an employee, you can use the table below to give you an idea of how the April 2024 National Insurance changes affected your salary in 2024, at different wage brackets. The figures below show your annual National Insurance bill.
| Salary | 2023 (12%) | January-April 2024 (10%) | From April 2024 (8%) | Difference 2023-April 2024 |
|---|---|---|---|---|
| £15,000 | £291.60 | £243.00 | £194.40 | £97.20 |
| £25,000 | £1,491.60 | £1,243.00 | £994.40 | £497.20 |
| £35,000 | £2,691.60 | £2,243.00 | £1,794.40 | £897.20 |
| £50,000 | £4,491.60 | £3,743.00 | £2,994.40 | £1,497.20 |
| £75,000 | £5,018.60 | £4,264.60 | £3,510.60 | £1,508.00 |
| £85,000 | £5,218.60 | £4,464.60 | £3,710.60 | £1,508.00 |
| £100,000 | £5,518.60 | £4,764.60 | £4,010.60 | £1,508.00 |
Source: AJ Bell.
For self-employed workers, those on lower incomes will see a bigger reduction in National Insurance than employees earning the same amount from April 2024, when Class 2 National Insurance was scrapped and the Class 4 rate changed.
For example, a self-employed person with £25,000 profits saves £552.30 a year from April, whereas an employee on a £25,000 salary saves £497.20 a year (compared with their 12% rate, applicable in 2023).
But higher-earning employees will end up with a bigger reduction than their self-employed counterparts. For instance, an employee earning £75,000 saves £1,508 a year from April, compared with the previous 12% rate, whereas a self-employed worker earning the same amount saves £1,310.40 a year from April.
Tax burden rising despite National Insurance cut
Investment platform interactive investor said in a press release that even with the National Insurance changes, both lower and higher earners are set to lose out because of the impact of fiscal drag.
In its analysis, it said that those earning £20,000 will pay £81 more tax in 2024-25, even with a £149 saving following the cut from 10% to 8%, because income tax thresholds aren’t rising with inflation. Those earning £100,000 will pay £1,064 more in the same tax year. This assumes an increase in tax thresholds in line with the OBR’s inflation forecast of 6.1% for 2023-24.
Average earners are set to benefit according to interactive investor, however. Someone earning £30,000 should save £119 following the cut from 10% to 8% when taking the impact of fiscal drag into account, while those on £40,000 should save £319.
Finally, keep in mind that National Insurance cuts only benefit those in work, because it’s paid on earned income. For example, an income tax cut or change to the tax thresholds would have benefitted some pensioners too. But because tax thresholds remain frozen, more pensioners are being dragged into paying income tax.
How can you mitigate the impact of fiscal drag?
Sarah Coles, Head of Personal Finance at investment platform Hargreaves Lansdown, said in an email to NerdWallet after November 2023’s Autumn Statement that it’s essential to make the most of every possible tax break. “This includes tax efficient savings and investments like ISAs and pensions, which lifts the tax burden [from saving for your future].”
Because personal allowances are frozen, and interest rates on cash savings accounts may be at their peak, more of us may be caught by having to pay tax on savings interest. That’s why it’s important to consider Individual Savings Accounts – or ISAs – as they give everybody a £20,000 tax-free savings allowance every tax year.
Paying into your pension will also usually attract some tax relief, helping you to reduce your tax burden and build your future pension pot.
Here are some tips to help you work out how much you can afford to save in your ISA or put into your pension in the new year:
- Work out your take-home pay. The table above will give you a rough estimate of the impact of National Insurance cuts on your take-home pay if you’re an employee. To achieve a more precise estimate of how much you’ll keep in January, you can find online calculators to work out your annual income and compare the prediction with your latest payslip.
- Calculate what’s left after essential spending. Then review your non-essential spending. This includes all your regular weekly, monthly and yearly outgoings, from music subscriptions to trips to the coffee shop. It will give you hard numbers related to where you may be overspending, and how much you could potentially save.
- The 50/30/20 rule. A handy way to budget and divide your take-home pay is:
- 50% on essentials, such as rent, mortgage, bills and food
- 30% on wants and non-essential spending
- 20% on paying off debt and building up savings
- Spending priorities. Although this may not be for everyone, a good rule of thumb when prioritising your spending is:
1. Clear your ‘toxic debt’, such as payday loans or high interest credit cards.
2. Start an emergency fund that can cover unexpected expenses.
3. Contribute to your workplace pension scheme.
4. Continue to add to your emergency fund.
5. Pay off your remaining debts.
» MORE: Budgeting 101: how to make your money go further
Image source: Getty Images
