- Someone on £15,000 will save just over £250 a year from April
- A self-employed person earning £50,000 will save just over £1,300 a year
- Lower earner self-employed benefit more than employed
- But higher earner employed people save the most
Laura Suter, director of personal finance at AJ Bell, comments:
“Around two million self-employed people will see a boost to their earnings from next month, as their National Insurance bill drops significantly. The previously-announced changes from the Autumn Statement were due to come in from April but have now been superseded by a further significant cut to rates. It means that the National Insurance rate for Class 4 contributions paid by the self-employed has been cut from 9% to 6%, at the same time as the government has scrapped Class 2 contributions.
“For someone on £35,000 that represents a saving of £850 a year from April, while those earning above the higher rate threshold of £50,270 will save the maximum of £1,310.40 a year. The cuts to National Insurance benefit self-employed lower earners more than employed lower earners, thanks to the scrapping of Class 2 contributions. These contributions were paid as a flat rate, rather than a percentage of earnings, meaning every self-employed person earning more than the threshold saves around £180 a year at current rates.
“The changes mean that a self-employed person on £15,000 will save just over £250 a year from April, compared to an employed person earning the same amount who will only save less than £100. However, at the top end the cut to rates is more beneficial for employed people, when compared to their self-employed peers. A self-employed person earning £50,000 will save just over £1,300 a year but an employee on that same salary will save almost £1,500 a year thanks to Jeremy Hunt’s cuts.
“As with the employed changes, anyone over state pension age will feel no benefits from the cuts as they don’t pay National Insurance. The move to reduce the self-employed National Insurance rate from 8% to 6% comes with a price tag of £710 million for the government next year. This is on top of the £725 million cost from the previous changes to self-employed National Insurance made in the Autumn Statement. If the same cuts had been made to income tax, and so applied to all earners, the total bill would have been far higher.”
