In November 2023, the government announced a reduction in the main rate of national insurance by 2 percentage points. The main rate applies to earnings between the Primary Threshold (PT) and Upper Earnings Limit (UEL). It impacts national insurance calculations for directors and employees but does not impact employer contributions.

NI calculations for employees and non-cumulative directors will use the new reduced rate from January 2024.

NI calculations used for cumulative directors use a hybrid rate from 6 January 2024, to 5 April 2024. The rate is based on nine months at the higher rate, then three months at the lower rate. From April 2024, the rate will decrease by 2 percentage points in line with employees and non-cumulative directors.

Each of the rates are detailed below.

Class 1 NI for employees and employers is calculated on a non-cumulative basis. This makes the calculations very straight-forward. Any NI calculations between 6 April and 5 January 2024 are calculated using the higher rates. While any calculations from 6 January 2024 onwards are calculated using the lower rates.

Using NI category A as an example;

Employees pay 12% on earnings over the Primary Threshold of £1,048 but under the Upper Earnings Limit of £4,189 per month. Earnings over the Upper Earnings Limit of £4189 per month are calculated at a rate of 2%

Employers continue to pay 13.8% on earnings over the Secondary Threshold of £758.

Employees pay 10% on earnings over the Primary Threshold of £1,048 but under the Upper Earnings Limit of £4,189 per month. Earnings over the Upper Earnings Limit of £4189 per month are calculated at a rate of 2%

Employers continue to pay 13.8% on earnings over the Secondary Threshold of £758.

To preempt questions from your employees, you can add a payslip message to confirm the new lower rates have been applied. For further information on how to do this, please refer to our Help Centre article.

The calculation for a director paying NI on a cumulative basis uses the director's earnings within the tax year to date and the annual thresholds. This means that the rates also need to be cumulative. The rates are calculated using the post-January 2024 rates, plus the pro-rated 1.5 percentage points.

Using NI category A as an example, directors will pay 11.5% on earnings between £12,570 and £50,270 per year. Then 2% on earnings over £50270.

Employers will continue to pay 13.8% on earnings over £9100.

Due to the recalculation on a year-to-date basis, depending on their earnings, directors will pay a lot less national insurance in January 2024 or even receive a national insurance rebate. This works in a similar way to an employee receiving a new tax code part way through the year that gives the employee more free-pay allowance.

Directors who pay NI using the table method are effectively paying NI in the same way as an employee, on a non-cumulative basis. However, in the final period of the tax year (March 2024), NI is recalculated on a cumulative basis. This ensures that regardless of which director's NI method is chosen, both calculations result in the same NI paid by the end of the tax year.

For rates used between 6 April 2023 and 5 March 2024, please refer to the Class 1 National Insurance for employees and employers section.

For the rates used in the recalculation in the final period of the tax year (6 March to 5 April), please refer to the Director method (cumulative) section.

If you make termination payments to an employee that are higher than £30,000 in total, the amount that exceeds £30,000 is subject to PAYE and Class 1A NI.

Class 1A continues to be calculated at 13.8%.

Class 1A NI is due on certain benefits provided to employees. The total of those benefits are recorded on your P11D(b) at the end of the tax year, and Class 1A NI is calculated.

Class 1A continues to be calculated at 13.8%.