With the rising cost of living dominating the headlines for the past few weeks, and now news that inflation has hit 9.1%, it is a welcome change to hear about a measure that will put money back into our wallets and purses. From Wednesday, July 6, a National Insurance tax cut will come into effect.
However, with percentages quoted, how much will that cut actually put back into our pockets? Here are the details explained.
Back in March, Chancellor Rishi Sunak used the Spring Statement to announce a change in the rate that people would pay National Insurance. It was a bid to lessen the impact of the decision to raise income tax contributions by 1.25 percentage points - which is about 10% - amidst the cost of living crisis.
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The original rise means workers now surrender 13.25% of their earnings to National Insurance, rather than 12%, up to £50,270, and on any earnings above that the rate is rising from 2% to 3.25%, reported Yorkshire Live. But under the plan announced in March, from Wednesday, July 6, 2022, the threshold at which workers start paying National Insurance will increase by £3,000. It means less of workers’ income will be subject to National Insurance as they will earn up to £12,570 a year before they pay it - a sharp increase from the current rate of £9,880.
Estimates show that around 30 million workers will benefit from the changes and an extra 2.2 million people will not have to pay NI at all. To understand if you're one of those that will benefit, the Government website has a calculator that makes it easy to work out - just input your wage information and then it will give you an estimate of how much less you’ll pay. To use it click here.
Generally speaking, it means workers won’t pay national insurance or income tax if they earn below £12,570 a year. If you earn more than this, you'll still feel the benefit and pay less National Insurance overall due to the higher threshold. The change will save each employee an average of £330 in national insurance per year.
Estimated contributions to National insurance:
Salary |
National insurance costs 2021/2 PA | Est National insurance costs after July 6 |
£20,000 |
£1,340 |
£984 |
£30,000 |
£2,451 |
£2,309 |
£40,000 |
£3,651 |
£3,634 |
£50,000 |
£4,851 |
£4,959 |
£60,000 |
£5,078 |
£5,311 |
It means that someone earning £20,000 would take home an extra £30 per month, depending on things like pension contributions and other things like marriage and student loans that affect your overall take-home pay. Someone earning £40,000 in the same situation, meanwhile, would take home an extra £29 per month. The extra amount - £29 - is the same even if you earned £100,000, according to the calculator. But over the course of a year, the savings roll into the hundreds of pounds.
