Are NICs on the way out?
The original concept for national insurance contributions (NICs) was as a part of social welfare reforms implemented by the government in the early 20th century. The idea being to establish a social insurance that provides financial protection and assistance to individuals and families when sick or unemployed, or in old age.
The National Insurance Act of 1911 required workers and their employees to start making contributions to a national insurance fund, which was to be used to finance various benefits.
The national insurance system has been further expanded and refined since then, but now in 2024 national insurance contributions could well be on their way out.
NICs was the hot topic of last year’s Autumn Statement and this year’s Spring Budget, with the rates for employee NICs and those charged on self-employed profits significantly cut. Class 2 NICs – a set rate of contribution paid by all self-employed businesses with profits above a certain threshold – has also effectively been abolished.
In the Spring Budget, the Chancellor, Jeremy Hunt, identified NICs on the earnings of the self-employed and employees as paying tax twice. He indicated that, when possible, the government would continue to cut national insurance.
This thought was further emphasised in a speech the Prime Minister, Rishi Sunak, gave last week at the 2024 Business Connect Conference. He said: “[The government’s] long-term ambition is to simplify the system and end the double tax on work, by abolishing NICs.”
After outlining the recent cuts, he concluded by saying: “We’re not done yet. We’ll make more progress towards abolition, in the next Parliament.”
NICs therefore seem likely to be an ongoing topic in the run up to a general election, likely to be held in the autumn. This is perhaps the death knell for NICs, but also raises questions about how tax will be levied to offset a reduction to NICs.
If you need help optimising your tax strategies so that you pay the minimum of tax or national insurance, please talk to DPC Accountants in Stoke-on-Trent. We will be happy to help you!
