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Does the Autumn Statement Mean More Take Home Pay?

The Autumn Statement was announced on the 22nd of November by Chancellor Jeremy Hunt and it brought along changes to UK national insurance contributions, but crucially there was no mention of income tax cuts that we have come to expect in the year leading to a general election. It’s essential for everyone to understand how these changes may impact their take-home pay and if the Chancellor’s announcement will actually benefit you as business owners and sole traders.

Impact of National Insurance Contribution Changes

The Autumn Statement brought alterations to national insurance contributions, leading to adjustments in take-home pay. On average, individuals can expect to save around £450 annually due to the changes in NI contributions, according to the independent office for budget responsibility. The modifications have implications for the tax burden on self employed individuals and will mean you take home more of your hard earned money.

What are the changes to National Insurance?

The Autumn Statement introduces adjustments in national insurance rates, impacting workers net income and tax contributions. The changes include a 2% reduction for class 1 NICs and a cut from 9% to 8% for class 4 NICs from January 2024. With such cuts, those who earn through the PAYE tax system will automatically see a reduction in their pay slip deductions after the beginning of 2024 which is when the changes take effect.
For self employed individuals the change in class 4 NICs will be present in self assessment tax returns. It is important that you understand how these changes will impact your return and the payments on account for the following years, consulting with an accountant may help clarify your situation.

Do these NI changes mean more take home pay?

The impact of the NI changes announced in the Autumn Statement on take-home pay may vary. Individuals earning below a certain threshold could see a slight increase, while higher earners may not experience any change. This is due to the freezing of income tax thresholds by Rishi Sunak.
Consider consulting an accountant to understand how these changes will affect your specific circumstances, taking into account other factors like taxes and pension contributions. For some, while the lowering of NI rates will mean more nominal take home pay, there will be a decreasing of real take home pay over the next few years as inflation pushes wages into higher tax brackets meaning they will experience less spending power.

Unchanged Tax Thresholds

The Autumn Statement maintains the freezing of income tax rates and thresholds until the 2027-28 tax year. Tax bands and allowances remain unchanged, including the personal allowance, basic rate, higher rate, and additional rate of income tax. This will increase HMRCs tax revenue due to wage inflation pushing more peoples taxable income into higher bands with what has been dubbed a stealth tax. But aside from a bigger budget for HM Treasury this may result in people having lower real wages as inflation erodes spending power of the higher wages meaning that your real pay may actually decrease over the next few years.

Implications of Untouched Tax Thresholds

Mr Sunak’s freezing of the thresholds mean, aside from more revenue for HMRC, this may result in people having lower real wages as inflation erodes spending power of the higher wages meaning that your real pay may actually decrease over the next few years.
In addition, CPI inflation is above the Bank of England’s target of 2% and is not predicted to be back to the target level until the end of 2025. With prices rising and no taxation cuts imminent it is important to plan ahead and ensure your business and personal affairs are structured as tax efficiently as possible

Are the changes outlined in the Autumn Statement advantageous for sole traders and business owners?

It’s important to consider that since tax thresholds remain untouched, the NIC cuts may not be enough to increase workers real take home pay. With class 4 contributions being cut less than class ones this effect is more acute for sole traders.
Of course the true effect of these changes will vary dependent on personal circumstances and you should consult a tax professional to ensure you are minimising your liability and taking home the most pay you can.

Get in touch with Sherwin Currid today to find out more about how we can help you.