Autumn Statement Summary
As we continue our series of Insights into the implications of the recent Autumn Statement, this week we have summarized the changes to the National Insurance system as well as the slight changes to state benefits and to the pension regime. You can find a summary of the income tax provisions and how these may affect private clients in our last post.
National Insurance Contributions
The Chancellor announced major changes to the National Insurance contributions (NICs) system.
Employees and NICs
The government will cut the main rate of Class 1 employee NICs from 12% to 10% from 6 January 2024 so that employees can benefit as soon as possible.
According to the government, this will provide a tax cut for 27 million working people with the average worker on £35,400 receiving a cut in 2024/25 of over £450.
The self-employed and NICs
The self-employed generally have to pay two forms of NICs: Class 2 and Class 4.
First, the government will abolish Class 2 self-employed NICs from 6 April 2024. This means that, from 6 April 2024:
- Self-employed people with profits above £12,570 will no longer be required to pay Class 2 NICs but will continue to receive access to contributory benefits, including the State Pension
- Those with profits between £6,725 and £12,570 will continue to get access to contributory benefits, including the State Pension, through a National Insurance credit without paying NICs
- Those with profits under £6,725 and others who pay Class 2 NICs voluntarily to get access to contributory benefits including the State Pension, will continue to be able to do so.
The government will set out the next steps on Class 2 reform next year.
Secondly, the government will cut the main rate of Class 4 self-employed NICs from 9% to 8% from 6 April 2024.
This will mean that a self-employed person who currently pays Class 2 NICs will save at least £192 per year and the cut in Class 4 NIC will benefit around two million individuals.
Both measures recognise the contribution of the self-employed to the economy and ensuring that work pays for all. They will not however benefit tax cashflows until typically January 2025.
Extension of NICs relief for hiring veterans
The government is extending the employer NICs relief for businesses hiring qualifying veterans for a further year from April 2024 until April 2025. This means that employers will continue to pay no employer NICs up to annual earnings of £50,270 for the first year of a qualifying veteran’s employment in a civilian role.
State Benefits
From April 2024, the government is increasing working age benefits in line with inflation by 6.7%. The government is also maintaining the Triple Lock and the basic State Pension, new State Pension and the Pension Credit standard minimum guarantee will be uprated by 8.5%.
Pensions
Tax limits for defined contribution pensions
A number of changes were made to the tax regime for defined contribution pensions for 2023/24 and these include the following, which will remain at their 2023/24 levels for 2024/25:
- The Annual Allowance (AA) is £60,000.
- Individuals who have “threshold income” for a tax year of greater than £200,000 have their AA for that tax year restricted. It is reduced by £1 for every £2 of “adjusted income” over £260,000, to a minimum AA of £10,000.
Tax limits for defined benefit pensions
The maximum annual employer contribution is still likely to be between £150,000 and £180,000 per member per year, depending on actuarial considerations. The amount is based on an actuarial calculation of the contribution required to receive an annual pension of £3,750 (1/16th of £60,000).
Carry forward rules
The three year carry forward rules for contributions to either scheme remain unchanged.
Money Purchase Annual Allowance (“MPAA”)
When an individual has flexibly accessed a defined contribution pension scheme, the tax relief on future pension contributions is restricted. This Annual Allowance – the MPAA – remains at £10,000.
Pension scheme reforms for the Lifetime Allowance (“LA”)
In addition, as previously announced, the LA of £1,073,100 will be abolished from 2024/25. Changes will be made to clarify the taxation of lump sums and lump sum death benefits, and the application of protections, as well as the tax treatment for overseas pensions, transitional arrangements, and reporting requirements.
There was no mention of changes to the taxation of beneficiaries when they receive a pension lump sum. Currently, income tax is only payable if the deceased was 75 or over when they died. The draft Finance Bill included clauses that would also charge income tax if the deceased died younger than 75, which would be a significant change in approach. No mention of this proposal was made in the Autumn Statement.
In our next post, we will take a look at the Capital Gains Tax and Inheritance Tax provisions, but if you have any questions concerning the Autumn Statement, and how it may affect you, please get in touch.