MARTIN Lewis’ Money Saving Expert’s team has issued a crucial warning regarding National Insurance.
Ministers slashed the main rate of primary Class 1 National Insurance contributions from 10% to 8% on April 6.
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The tax cut is worth roughly £250 a year for someone on £25,000, £450 on £35,000 annually and £750 for all those who earn over £50,270 each year.
“But fiscal drag (frozen tax thresholds) eats some back,” the financial guru’s newsletter warned.
“National Insurance and income tax thresholds have been frozen since 2021 (though there have been slight changes in Scotland), while earnings have risen.
“The result… more of your income goes to tax.
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“This way of increasing tax revenue is called ‘fiscal drag'”.
To check if you’re up or down for 2024/2025, make sure you check the Income Tax and National Insurance Calculator.
What is National Insurance?
National Insurance is a tax on your earnings that goes towards paying for state benefits such as the state pension.
If you are a UK national, you should receive an NI number and card before you turn 16, but you may have to apply.
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This number allows the Government to track your earnings and apply the right amount of tax.
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You pay National Insurance if you’re 16 or over and either:
- An employee earning above £242 a week
- Self-employed and making a profit of more than £12,570 a year
It is deducted from your wages each month.
If you’re employed, you can see your contributions by looking at your pay slip.
Once you’ve reached state pension age, currently 66, you stop paying National Insurance.
There are different types of National Insurance, known as “classes”, and the type you pay depends on your employment status, how much you earn, and whether you have any gaps in your National Insurance record.
For example, Class 1 NICs, falling to 8% from Saturday, are paid on earnings over £12,570 and below £50,271.
What is National Insurance?
NATIONAL Insurance is a tax on your earnings, or profits if you’re self-employed.
These contributions make you eligible for things like the state pension and certain benefits.
You’ll usually pay National Insurance Contributions (NICs) when you’re over the age of 16 and earning a certain amount.
For example, if you earn £1,000 a week, you pay nothing on the first £242.
Earn over that and you pay 10% on the next £725 – so £72.50. Then you pay 2%o on the rest, so £33, which works out as 66p.
For the self-employed rates are slightly different.
You can also get something known as National Insurance in some circumstances when you’re not working, for example when you have kids and claim certain benefits.
NICs are usually taken automatically by your employer and paid to HMRC, so you don’t need to do anything.
You can see how much NICs you pay on your wage slip.
Anyone working for themselves usually has to pay NICs themselves when completing a self-assessment tax return.
