By Graham Poles, of Armstrong Watson
The 2024 Spring Budget brought about some positive changes for many working individuals with a further 2% cut to National Insurance Contributions (NIC) and changes to the High Income Child Benefit Charge (HICBC).
National Insurance changes
As was widely speculated ahead of the Chancellor’s announcement, Class 1 and Class 4 National Insurance Contributions will be reduced by 2% from 6 April 2024.
This will be welcome news for employees, particularly following the 2% cut to NICs announced in the Autumn Statement.
This further reduction in NIC will, for example, give those on a salary of £35,400 a further tax cut of £450 per year (£900 a year including the Autumn Statement NIC cut).
Those who are self-employed, who had only seen a 1% reduction in the rate of Class 4 NIC in the Autumn Statement, will now also benefit from the full 2% reduction, benefiting two million self-employed workers.
However, Jeremy Hunt did not address the issue of fiscal drag, which continues to push many people into higher tax brackets as their wages grow, and is a result of income tax thresholds having been frozen since 2021; he did not change the personal allowance from £12,570, the threshold where higher rates of tax are paid of £50,271, or the additional rate threshold at £125,140, above which 45% income tax is paid, and they all remain frozen until April 2028.
What this means for those in business, is the decision about what structure is appropriate (sole trader/partnership/LLP or limited company), now needs even further detailed consideration.
The rate of class 4 NIC and income tax at the lower rates, when matched with corporate tax rates and dividend taxes at 8.75%, does mean at certain levels of income the net position for the business and individuals can mean different structures are more beneficial depending on circumstance.
High Income Child Benefit Charge
The intention of the High Income Child Benefit Charge (HICBC) was to clawback the child benefit for households where one earner has income over £50,000.
Child Benefit is entirely removed for those earning more than £60,000. The inequity was that two earners could each receive £50,000, (£100,000 as a household) but lose none of their child benefit.
The Chancellor will move to a household basis for assessing income from April 2026. Until then, from April 2024, the £50,000 threshold will increase to £60,000, removing 170,000 families out of the charge altogether. The Government will also remove the child benefit at a slower rate.
Previously, 1% of child benefit was lost for every £100 of income over £50,000. This will move to 1% for every £200 of income over £60,000, meaning it will be lost by the time your income reaches £80,000.
If you would like to discuss how these changes impact you and your business, please call 01768 222030 or email help@armstrongwatson.co.uk
