Tens of thousands of workers across the UK will see an increase in their take-home pay for the month of July. It comes as changes to the way in which National Insurance contributions are made come into force.
As part of his Spring Statement back in March, former Chancellor of the Exchequer Rishi Sunak announced that the starting threshold for National Insurance will rise by £3,000 to £12,570. This means that from July, UK employees will get to keep hold of more of what they earn before they have to start paying personal tax.
The cut, worth more than £6bn, is expected to benefit almost 30 million workers, with the average employee saving more than £330 per year from July 6. Meanwhile, the higher-rate threshold will remain at £50,270, reports WalesOnline.
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At the time of his announcement, Sunak described the move as the single biggest tax cut for a decade. He said that "around 70% of all workers will have their taxes cut by more than the amount they'll pay through the new levy".
But while those on low incomes will take home extra money, others will end up paying more. Here is everything you need to know about the National Insurance changes, including how much tax you'll now be paying.
What is National Insurance and who pays it?
National Insurance is a tax on earnings paid by employees, employers, and the self-employed, who pay NI on their profits. It is used to pay for services like the NHS, pensions, benefits and maternity leave payments.
How much you pay is dependent on your employment status, as well as the amount you earn. On April 6 this year, National Insurance contributions increased by 1.25 percentage points as part of an effort to support the NHS.
The rise means workers now pay 13.25 per cent of their earnings to National Insurance, rather than 12%, up to £50,270, while for earnings above that, the rate has moved from 2% to 3.25%. However, from April 2023 National Insurance contributions will return to their previous rate, with the extra tax set to be collected as a new health and social care levy.
How is National Insurance changing and what does it mean for me?
Previously, the class one National Insurance threshold was £9,568 a year, meaning that anyone earning less than this amount wouldn't have to make any contributions. But as of Wednesday, July 6, the income threshold at which people must start paying National Insurance is £12,570.
How much money you save on NI contributions depends on what you earn and whether you met the previous threshold. According to the UK Government, nearly 30 million workers will benefit, with a typical employee saving more than £330 in the year from July.
An additional 2.2 million earning below the threshold will now not have to pay NI. HM Revenue and Customs (HMRC) has launched a new tool on the GOV.UK website which can estimate how the National Insurance contributions changes will affect your take-home pay.
In the meantime, this is how much you will now see deducted from your pay from July onwards against how much you would have been paying under the previous threshold:
- £20,000 - £82 (currently £122)
- £30,000 - £192 (currently £222)
- £40,000 - £303 (currently £333)
- £50,000 - £413 (currently £443)
- £60,000 - £443 (currently £472)
- £70,000 - £470 (currently £499)
- £80,000 - £497 (currently £526)
- £90,000 - £524 (currently £554)
- £100,000 - £551 (currently £581)
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