It was revealed by UK Chancellor of the Exchequer Rishi Sunak in the Spring Statement that the National Insurance Contributions threshold will increase by £3,000 from July.
This means that workers across Scotland and the UK will be able to hold onto more of the money they earn before having to pay tax.
Around 30 million people in work will benefit from the change, with employees saving around £330 this year.
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As reported by the Daily Record, Sunak called it the largest tax cut in a decade and stated that "around 70% of all workers will have their taxes cut by more than the amount they'll pay through the new levy".
As a result, workers will now pay National Insurance on wages over £12,570 a year — significantly higher than the originally planned £9,880 figure.
While this means that some of the lowest-earning workers will not be required to pay the tax, National Insurance contributions rose by 1.25% in April as part of the Health and Social care levy intended to help fund the NHS.
In the face of the worsening cost of living crisis, Sunak was under pressure to cancel the National Insurance increase, but instead decided to increase the threshold at which workers are required to pay National Insurance.
According to senior pensions and retirement analyst at Hargreaves Lansdown Helen Morrissey, though, those earning under £12,570 a year risk losing access to crucial National Insurance credits for their State Pension.
Helen said: “Ordinarily a worker should receive an NI credit even if they earn below the threshold as long as they have earnings of more than £120 per week or £6,240 per year but it’s worth checking to make sure this is the case.
“The State Pension forms the backbone of most people’s retirement and therefore, they should ensure they do not incur gaps unnecessarily, which means they end up with less in retirement."
The majority of benefits automatically come with National Insurance credits, such as Child Benefit, Universal Credit and Jobseekers Allowance.
However, others like Statutory Sick Pay (SSP) will only be worth credits if you manually apply for them.
Helen added: "It is vital people worried they may no longer be getting National Insurance credits check to see what benefits they are entitled to, so these credits can be made.
“A further option for people looking to plug gaps in their State Pension record is to buy voluntary National Insurance credits."
Purchasing a year's worth will cost around £825, and will give you 1/35th of your entitlement.
Over the course of your retirement, this may be a very worthwhile investment.
Automatic National Insurance Credits
You should get automatic National Insurance credits if you receive the following benefits:
- Universal Credit
- Jobseekers Allowance
- Employment and Support Allowance
- Maternity Allowance
- Child Benefit
- Carer's Allowance
- Income Support
In the following cases, you may be able to claim National Insurance credits
- If you are unemployed and looking for work but not claiming Jobseekers Allowance, you can contact your Jobcentre to claim credits.
- If you are on Statutory Sick pay and you do not earn enough to make a qualifying year NIC, you can still claim. The same goes for statutory maternity, paternity or adoption pay.
- If you are caring for one or more sick or disabled person for at least 20 hours a week and you don’t claim Carers Allowance or Income Support.
- You are under state pension age and you look after a child under the age of 12 you may qualify for Specified Adult Childcare Credit.
For more information and how to claim go to National Insurance credits: Eligibility on the GOV.UK website here.
