Understanding the Autumn 2023 UK Budget: Income Tax Changes for Employees and Self-Employed Individuals

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Gerry MacCrossan

Understanding the Autumn 2023 UK Budget: Income Tax Changes for Employees and Self-Employed Individuals

For Employees

National Insurance Contributions

  • Class 1 NICs Reduction: Starting from 6 January 2024, the main rate of Class 1 NICs will be reduced from 12% to 10% for employees earning more than £12,570 a year.
  • Impact on Workers: An average worker earning £35,400 will benefit from an NIC reduction of over £450 annually. Those earning over £50,270 will see a reduction of £754.
  • Earnings Above £50,270: The Class 1 NIC rate for earnings above this threshold will remain at 2%.
  • Employer’s Class 1 NICs: No change in the rate for employers, remaining at 13.8%.


For the Self-Employed

Class 2 and Class 4 NICs

  • Class 2 NICs Abolished: From 6 April 2024, self-employed individuals with profits over £12,570 will no longer need to pay the flat rate sum of Class 2 NICs.
  • Class 4 NICs Rate Cut: The main rate of Class 4 NICs will be reduced from 9% to 8% from 6 April 2024, with 2% still applicable on profits over £50,270.
  • Savings for Self-Employed: An average self-employed person with profits of £28,200 is expected to save £336 in 2024/25.
  • State Benefits Access: Self-employed individuals will continue to have access to state benefits, with those earning between £6,725 and £12,570 receiving it via a National Insurance credit. Those earning under £6,725 can voluntarily pay Class 2 NICs to maintain benefits access.

Income Tax: ‘Stealth’ Increases and Allowances

Fiscal Drag and Personal Allowances

  • Frozen Thresholds: The personal allowance and basic rate band threshold remain frozen at their 2021/22 levels until 5 April 2028.
  • Higher Earners: The personal allowance is partially and then fully withdrawn for incomes over £100,000, with £1 lost for every £2 of adjusted net income over this amount.


Income Tax Rates for 2024/25

  • Basic Rate: 20% on earned, savings, and dividend income up to £37,700.
  • Higher Rate: 40% on income between £37,701 and £125,140.
  • Additional Rate: 45% on income over £125,140.
  • Dividend and Savings Allowances: Reduced dividend allowance of £500 and personal savings allowance of £1,000 for basic rate taxpayers and £500 for higher rate taxpayers.

Scotland-Specific Rates

The Scottish Government is due to make its budget announcements later this month. As you know there is a different Banding System for Scottish taxpayers. We have varied rates for ‘earned and property income’ of 19%, 20%, 21%, 42% and a top rate of 47% for incomes over £125,140.


Tax-Efficient Savings and Pension Tax Relief

ISAs, Trust Funds, and Pensions

  • ISA Limits: Remain at £20,000 for individuals, £9,000 for Child Trust Funds, and Junior ISA.
  • Pension Allowances: The £60,000 annual allowance and £10,000 money purchase annual allowance remain unchanged.

These changes highlight the UK government’s approach to reducing the tax burden for both employees and the self-employed. It’s crucial for individuals and businesses to understand these changes to manage their finances effectively. For personalised advice, please don’t hesitate to get in touch.