Chancellor Rishi Sunak announced in the Spring Statement that the National Insurance Contributions starting threshold will rise by £3,000 to £12,570 from next month, meaning employees across the UK will keep more of what they earn before they have to start paying personal tax.
The cut, worth over £6 billion, will benefit almost 30 million working people with a typical employee saving over £330 in the year from July 6. The higher-rate threshold will remain at £50,270.
At the time, the Chancellor hailed it as the single biggest tax cut for a decade and said "around 70 per cent 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.
Here is everything you need to know about the changes to the National Insurance threshold increase starting on July 6.
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 the NHS, state benefits and the State Pension.
Changes to National Insurance Contributions
The Health and Social Care Levy came into effect on April 6, 2022. This is a 1.25 percentage point increase on National Insurance Contributions designed to support the NHS across the UK.
From April 2023, National Insurance Contributions will return to its previous rate, and the extra tax will be collected as the new Health and Social Care Levy.
This levy will also be paid by people over State Pension age who continue to work.
Who pays National Insurance?
- Employees pay NI on their wages
- Employers also pay extra NICs for staff
- Self-employed pay NI on their profits
National Insurance threshold changes
From July 6 the National Insurance threshold will be the same as the income tax threshold, known as the Personal Allowance.
That means you won’t pay National Insurance or income tax if you earn below £12,570 a year. If you earn more than this, you will still feel the benefit as you will pay less National Insurance overall due to the higher threshold.
Salary and new monthly National Insurance Contributions from July 6
This is how much you will see deducted from your salary every month if you earn:
- £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)
Online HMRC National Insurance tool
You can use this tool to get an estimate of how the changes to National Insurance Contributions will affect you.
If you’re self-employed the amount of profit you can earn before you pay National Insurance contributions is also increasing. However, you will not be able to use the tool to get an estimate.
Before you use the tool
You can use this tool to get an estimate if you’re employed and paid the same amount monthly, by your employer through the PAYE system.
HMRC online guidance warns that you will not get a useful result if you have different working arrangements for the period from July 6, 2021 to July 5, 2023, including if you’re not liable to pay the main rate of UK Class 1 National Insurance contributions at the standard rate on your earnings or profits.
This includes if :
- you’re over State Pension age
- you’re self-employed
- you pay the reduced rate
- you work outside the UK
This also includes if you have either more than one employer or you’re not evenly paid all of your earnings in a monthly payment (or both)for example:
- you get a bonus
- you’re paid commission
- you’re paid weekly
- there is, or will be, a change in your circumstances which affects the amount of UK National Insurance contributions you pay in the period such as getting a pay rise or changing employers
Get an estimate of your National Insurance Contributions using the tool on the GOV.UK website, here.
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