Changes to the way National Insurance contributions are made have come into affect this month meaning that tens of thousands of workers will see an increase in the amount of money they take home in their July pay packet. Former chancellor Rishi Sunak announced in the spring statement in March that the starting threshold will rise by £3,000 to £12,570 from July meaning employees across the UK will keep more of what they earn before they have to start paying personal tax.
The cut, worth more than £6bn, is expected to have benefited almost 30m working people with a typical employee saving more than £330 in the year from July 6. The higher-rate threshold will remain at £50,270.
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At the time Mr Sunak hailed it as the single biggest tax cut for a decade and said "around 70% of all workers will have their taxes cut by more than the amount they'll pay through the new levy". And now HM Revenue and Customs (HMRC) have launched a new tool on the GOV.UK website which can estimate how the National Insurance contributions changes will affect your take-home pay.
The changes mean some of those on low incomes could have a few hundred extra pounds in their pocket. However others will end up paying more. Here is everything you need to know about National Insurance including what it is, when and what changes are coming, and how much tax you'll pay.
What is National Insurance?
National insurance is a tax on earnings paid by employees, employers, and the self-employed who pay it on their profits. It is used to pay for things like the NHS, benefits, and pensions covering everything from jobseeker's allowance to maternity leave payments.
The amount you pay depends upon your employment status and earnings. On April 6 this year National Insurance contributions increased by 1.25 percentage points in a move to support the NHS in the UK. The rise means workers now give up 13.25% of their earnings to National Insurance, rather than 12%, up to £50,270. On earnings above that the rate is rising from 2% to 3.25%. From April 2023 National Insurance contributions will return to their previous rate, and the extra tax will be collected as the new health and social care levy.
Who pays National Insurance?
- Employees pay NI on their wages
- Employers also pay extra NICs for staff
- Self-employed pay NI on their profits
What do the changes implemented from July mean?
The class one National Insurance threshold was £9,568 a year meaning that if you earned less than this amount you wouldn't have to make National Insurance contributions. But starting from Wednesday, July 6, the income threshold at which people had to start paying National Insurance increased by £3,000 to £12,570. For many this will mean you see more money in your pay packet from this month as the point at which you start paying NI will be higher.
Will I be better off and by how much?
It depends on how much you earn and whether it was enough to meet the previous threshold. According to the UK Government nearly 30m working people will benefit with a typical employee saving more than £330 in the year from July. An extra 2.2m people will not have to pay NI at all as generally speaking workers won’t pay National Insurance or income tax if they earn below £12,570 a year. People earning more than this will still feel the benefit and pay less NI overall due to the higher threshold.
Someone aged 25 working 37.5 hours a week on minimum wage would earn £17,100 a year and save £318 in NI. This is because their NI bill would fall from £917.52 currently to £599.40, The Mirror reported. Someone earning £20,000 a year would be £291 a year better off and a taxpayer on £30,000 would save £197. However a high earner on a £50,000 salary would save just £10 – and anyone earning £100,000 per year would pay £459 more. The Treasury stated that the tool will “help people budget” during the cost of living crisis. So while some people will definitely be better off it really depends on how much you earn.
How much will I see deducted from my salary and will I save?
This is how much you will see deducted from your salary every month from July versus how much you're currently losing:
- £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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