Major changes to how much National Insurance you pay are set to come into effect this week as the government aims to helps those most impacted by soaring living costs. Earlier this year Chancellor Rishi Sunak announced a raft of measures in a bid to help those hardest hit by rising energy costs, supermarket prices, council tax hikes and fuel prices.
The £15 billion emergency package included extra cash for low-income households, those with disabilities, pensioners and other groups. Also announced was an increase to the income threshold at which people have to start paying national insurance which the government claims will benefit 30 million workers in the UK.
The changes mean some of those on low incomes could have a few hundred extra pounds in their pocket as a result of the changes. 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.
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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 job seekers allowance to maternity leave payments.
The amount you pay depends upon your employment status and earnings. On April 6 this year National Insurance contributions increase 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.
What is changing this month?
The class one National Insurance threshold is currently £9,568 a year. If you earn less than this amount, you won’t have to make National Insurance contributions.
But starting from Wednesday, July 6, t he income threshold at which people have to start paying National Insurance will be 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?
It depends on how much you earn and whether it was enough to meet the previous threshold. According to the UK government, nearly 30 million working people will benefit with a typical employee saving over £330 in the year from July. An extra 2.2 million 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?
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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