The warned increase in National Insurance payments comes into effect on Wednesday. This will be another blow to workers already facing mounting bills as the cost of living continues to rise.
There will be some relief for people as the amount where people will start paying the tax will rise twice within a few months. Under plans announced by the government it will go up from the current threshold of £9,568 a year both tomorrow and again in July.
From tomorrow the annual amount someone can earn before they have to pay National Insurance will increase to £9,880. From July 6 there will be another rise taking the threshold to £12,570.
The second increase was announced by Chancellor Rishi Sunak in the Spring Statement as the concerns over the rising cost of living mounted. It will see the "typical employee" saving around £330 a year, according to the Mirror.
The Treasury says the July increase will help almost 30m workers. It said seven in 10 of those who pay National Insurance will pay less after the second increase. A further 2.2m people will pay nothing.
From tomorrow National Insurance payments will go up by 1.25 per cent. They will rise from 12 per cent to 13.25 per cent.
For earnings above £50,270, the rate at which workers will pay National Insurance is rising 1.25 per cent next week to 3.25 per cent, up from two per cent.
How will it affect me?
The point at which you’ll start paying more National Insurance after July is around £35,000, according to MoneySavingExpert Martin Lewis. "If you're under that [amount], this is a gain, if you're over that [amount], then the two measures are a loss for you,” he said in a video posted to Twitter.
Martin added: "Effectively the way it works on earnings is from over around £9,600, all the way up to around £35,000, you will either not pay any more, or lower down [the pay scale], will pay less National Insurance than currently. If you earn £35,000 or more then the 1.25 percentage point increase outweighs the change in the starting threshold, so you will pay more National Insurance."
How much more or less you will pay in National Insurance depends on your current salary. Someone earning £30,000 a year currently pays £204 a month in National Insurance contributions. This will rise to £222 a month from April when the 1.25 percentage point increase comes in, but in July - when the threshold increases for a second time - they will start paying £192
For someone earning £100,000 a year, they currently pay £490 a month in National Insurance. But from April this will go up to £581 a month, before falling to £551 a month in July.
Here is how your National Insurance is changing, according to figures from the Institute For Fiscal Studies:
- £20,000 annual pay: NIC now - £104; NIC from April 6 - £112; NIC from July 6 - £82
- £30,000 annual pay: NIC now - £204; NIC from April 6 - £222; NIC from July 6 - £192
£40,000 annual pay: NIC now - £304; NIC from April 6 - £333; NIC from July 6 - £303
£50,000 annual pay: NIC now - £404; NIC from April 6 - £443; NIC from July 6 - £413
£60,000 annual pay: NIC now - £423; NIC from April 6 - £472; NIC from July 6 - £443
£70,000 annual pay: NIC now - £440; NIC from April 6 - £499; NIC from July 6 - £470
£80,000 annual pay: NIC now - £457; NIC from April 6 - £526; NIC from July 6 - £497
£90,000 annual pay: NIC now - £473; NIC from April 6 - £554; NIC from July 6 - £524
£100,000 annual pay: NIC now - £490; NIC from April 6 - £581; NIC from July 6 - £551
National Insurance is a tax on earnings, paid by both employed and self-employed workers. It allows workers to qualify for certain benefits and the state pension.
You pay mandatory National Insurance if you’re 16 or over and are either an employee earning above £184 a week, or self-employed and making a profit of £6,515 or more a year. Once you reach state pension age, you no longer need to keep paying National Insurance.
If you have an employer, or you're self-employed but work for an employer, you'll pay Class 1 National Insurance contributions. The amount you pay on National Insurance is then worked out based on your on gross earnings, before tax or pension deductions, above certain thresholds.
How to cut your National Insurance bill
If your company offers a salary sacrifice scheme for pension contributions, then you can slash your National Insurance bill by paying more into your pension. Salary sacrifice schemes effectively cut your salary, and pay money into your pension, which is free of both income tax and national insurance.
It in turn also gives your retirement stash a boost so you have more money in later life. The idea is that by giving up a portion of your salary, the amount you get paid is reduced – which decreases the amount of income tax and National Insurance you pay.
Keep in mind, as the name suggests, you will effectively be reducing your monthly pay. However in some cases, it can make financial sense.
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