MILLIONS of workers on an exact tax code will receive a pay boost of up to £900 within days.
The Government is slashing the main rate of primary Class 1 National Insurance contributions from 10% to 8% from April 6.
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It comes after ministers cut the same rate of NICs from 12% to 10% in January this year.
The Government says the two combined cuts will save a worker on £35,400 about £900 a year.
But an exact code on your payslip will tell you if you are in line for the pay boost.
The standard tax code for basic-rate taxpayers, which is most workers, is 1257L.
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It’s used for those with one job and no untaxed income, unpaid tax or taxable benefits (like a company car).
It also means you can earn £12,570 a year before being taxed.
If you’ve got this tax code on your payslip, you are affected by the two recent NIC cuts and will see your annual pay rise.
Of course, how much more you’ll save in tax from Saturday depends on your exact income.
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But, according to AJ Bell, someone on a £25,000 annual salary will see their pay go up by almost £500 a year.
Meanwhile, someone on a £50,000 annual salary will see their pay jump by almost £1,500 a year.
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You can work out the exact amount your salary will change by using our calculator from tax experts at Blick Rothenberg.
It’s not just workers paying the main rate of primary Class 1 National Insurance contributions who will get a pay boost from Saturday.
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.
Two million self-employed people will also see the main rate of National Insurance slashed from 8% to 6%, working out at an average saving of £350 a year.
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.
This number allows the Government to track your earnings and apply the right amount of tax.
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.
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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.
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