How does the cut to National Insurance work?
From January 2024, class 1 National Insurance is charged 10% - down from 12% - on earnings between £12,570 and £50,270 per year and 2% on everything over that amount. Those who are employed (and paid via PAYE) will see a reduction in the amount of National Insurance they pay, thereby increasing their take-home pay. The cut came into effect from 6th January, meaning it could take until late February to see the full benefits of the cut.
Further cuts to National Insurance will take place on 6th April 2024, with self-employed people set to benefit. Class 4 National Insurance - which is charged on annual profits between £12,570 and £50,270 - is reducing from 9% to 8%. The 2% charge on profits over £50,270 remains. Additionally, Class 2 National Insurance - usually charged at £3.45 per week - is being abolished for those who have annual profits of more than £12,570. It means that the average self-employed worker with profits of £35k will save around £425 per year.
Changes to National Insurance - How much better off will I be?
The table below gives examples of how much better off you will be once Class 1 National Insurance contributions are cut to 10%.
National Insurance cut - Employed (From 6th January 2024)
| Annual Salary before tax | Annual increase due to NI cut | Monthly change to take-home pay |
| £20,000 | £148.44 | £12.37 |
| £25,000 | £248.52 | £20.71 |
| £30,000 | £348.48 | £29.04 |
| £35,000 | £448.44 | £37.37 |
| £40,000 | £548.52 | £45.71 |
| £45,000 | £648.48 | £54.04 |
| £50,000 | £748.44 | £62.37 |
| £55,000 | £753.84 | £62.82 |
| £60,000 | £753.84 | £62.82 |
The maximum increase to take-home pay in the table above is £62.82. This is because the cut to Class 1 National Insurance contributions only applies to earnings between £12,570 and £50,270.
National Insurance cut - Self-employed (From 6th April 2024)
The table below gives examples of how much better off a self-employed person would be once the reduction to Class 4 National Insurance and abolishment of Class 2 National Insurance takes effect.
| Annual profit before tax | Annual increase due to NI cut | Monthly change |
| £20,000 | £269.64 | £22.47 |
| £25,000 | £319.68 | £26.64 |
| £30,000 | £369.72 | £30.81 |
| £35,000 | £426.12 | £35.51 |
| £40,000 | £469.68 | £39.14 |
| £45,000 | £519.72 | £43.31 |
| £50,000 | £569.64 | £47.47 |
| £55,000 | £580.80 | £48.40 |
| £60,000 | £591.96 | £49.33 |
Ways to make the most of the cuts to National Insurance
For many, the increase in take-home pay will simply provide a small, but welcome boost to the family finances each month. There are, however, some sensible ways in which you could use the money to ensure you maximise the benefits. We list our top suggestions below:
Pay off debt
If you are currently paying the minimum repayment on your credit card, you might want to consider using the additional money in your take-home pay to boost the amount you are paying off your debt. You may also want to consider changing it to a fixed amount each month. In our article, 'What is the minimum payment on a credit card?' we explain how a £3,000 credit card balance would take 19 years to clear when only paying the minimum repayment each month. We also reveal how this can be reduced to just 4 years and 9 months by repaying a fixed amount each month.
Build an emergency fund
Building an emergency fund can help provide a financial buffer to combat any nasty surprises, such as the boiler breaking down or the car needing fixing. If you haven't yet built an emergency fund, any extra you receive in your take-home pay could help you to start saving a small amount each month. Check out our article 'How to build an emergency fund' for more information.
Put it into savings
There are a number of savings accounts that offer interest rates in excess of 5%, so putting the extra money away each month could be a wise move. Check out our article 'How to get more than 5% interest on your savings'. You could also consider saving into a Cash or Stocks and Shares ISA or perhaps a Lifetime ISA if you are under 40 and looking to buy a house or invest in a pension. If you have children and haven't yet had the means to start building a savings pot, now could be a good time. Children's savings accounts offer a very good rate of interest and putting a small amount away each month can make a huge difference. Now might also be a good time to consider opening a Junior ISA.
Plug gaps in your NI record
The state pension you'll qualify for depends on your National Insurance contribution record. For the new state pension, you'll likely need around 35 qualifying years. You may find that you have gaps in your National Insurance record; perhaps you were earning less than the threshold or maybe you took some time out of work to have a family. There is a system in place where people can plug gaps in their National Insurance record going back as far as 2006. It currently costs £824 to fill a missing year on your National Insurance record, resulting in an immediate state pension boost worth £303 per year. Read our article 'How to fill gaps in your National Insurance record to boost your state pension'.
Boost your pension
You could consider using the cut to National Insurance to boost your personal pension contributions. Someone earning £50k per year will save around £47.47 per month in National Insurance, however, if you diverted the saving into a personal pension, it would immediately be worth £59.34, thanks to the boost you get from the 20% tax relief from the government. It means that after fees and assuming growth of 5% per year, a 45 year old could boost their pension by around £50,000 if it were to remain invested until they were 67. Higher and additional rate taxpayers can boost their pension by even more, thanks to higher tax relief.
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