Millions of workers will be better off thanks to a major change to National Insurance that comes into effect from Sunday (November 6).
The 1.25% rise in National Insurance (NI) contributions, which was brought in earlier this year, has now been reversed. This means that, over a certain threshold, you now pay 12% in NI contributions instead of 13.25%.
According to the Government, around 28 million people across the UK will now keep an extra £330 a year on average in the 2023/24 tax year, reports The Mirror. Here is a guide to what is happening and how much money you are likely to save.
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What is National Insurance?
National Insurance is a tax on earnings and self-employed profits above a certain threshold. Your contributions qualify you for benefits and the state pension in later life. Once you reach state pension age, you no longer need to keep paying NI.
If you are employed, rather than self-employed, you'll pay Class 1 contributions. You start to pay NI once you earn above £12,570 before tax.
The rate will go down to 12% on earnings between £12,570 and £50,270 from November 6. You previously paid 3.25% on earnings over £50,270 but this is dropping to 2%.
The rules are different for self-employed people. - unless you are self-employed but have an employer. If you are fully self-employed, you start to pay Class 2 contributions when your profits are above £6,725. This is a fixed weekly amount of £3.15.
You'll pay Class 4 contributions if you're fully self-employed and your profits are £11,909 or more a year. Class 4 contributions are charged at 10.25% on profits between £11,909 and £50,270, then 3.25% on profits over £50,270.
How much will you save?
The exact amount that you will save through the reduction in NI contributions will depend on how much you earn. Personal finance specialists at Hargreaves Lansdown have worked out how much people will save based on their earnings.
- Workers on £20,000 will save £93 a year
- Workers on £30,000 will save £218 a year
- Workers on £40,000 will save £343 a year
- Workers on £50,000 will save £468 a year
- Workers on £60,000 will save £593 a year
- Workers on £80,000 will save £843 a year
- Workers on £100,000 will save £1,093 a year
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