At the Autumn Statement 2023 held on 22nd November, a 2% cut in the standard rate of National Insurance was announced with the rate dropping from 12% to 10% effective for payment due from 6th January 2024.
If National Insurance is considered a tax, this means a £450 annual tax cut for the average worker earning £35,400.
Delaying payments!
Some payroll professionals may have experienced employer requests to delay some pay items such as bonus – is that correct?
An employee contract may state when payments are due to be made, if the payment is due prior to 6th January 2024 under the terms of the contract, then the 12% rate should apply. However, some payments may follow employer set rules where both the payment and the payment point are discretionary. In which case the employers chosen payment point dictates the applicable rate. So if a payment is appropriately chosen to be made on or after 6th January 2024, then the 10% rate applies.
Is it worth delaying such payments to directors? As directors have an annual blended rate of 11.5% then delaying payment makes no difference and would be pointless.
So the reality is that for some who would regularly have received discretionary added amount leading up to Christmas May find such payments related into the new year.
Directors
As directors are paid on an annual basis, for Directors NICs, either under the annual method or the alternate method, NICs will require recalculation on the new blended directors rate of 11.5%. This equates to 9 months at 12% and 3 months at 10% which works out at the blended rate of 11.5%.
This rate applies to all directors that have received payment in the 2023/2024 tax year even if they left before 6th January 2024, or for new directors even if their directorship started after 6th April. The same blended rate applies to all. Of course, from 6th April the rate drops to 10% as the blended rate expires.
Payroll software updates
Employers and payroll service companies will need to ensure that they have obtained and applied updated versions of payroll software that can undertake the 6th January and also 6th April 2024 changes.
The changes are announced at short notice, so there are some risks that payroll software may not have been updated in time for the first payments due from 6th January 2024, so adjustments may need to be applied in subsequent months.
And next – 6th April 2024
Although there are no changes for employees NI, the directors blended rate is no longer required as both employees and directors now align.
Resources
For more resources on this change and the changes for Tax Year 2024/2025 see: Resources for tax year 2024/2025.
And
National Insurance rates cut by 2 percent – PAYadvice.UKNational Insurance change for directors – are you ready – PAYadvice.UKPayroll 2023-24: January 2024 changes to NICs – PAYadvice.UKAutumn Statement 2023: National Insurance Factsheet – PAYadvice.UKNI reduction bill presented – PAYadvice.UKReduction in NI = reduction in employee salary sacrifice benefit – PAYadvice.UK
PAYadvice.UK 31/12/2023