MILLIONS of workers are set to get a £450 boost in the Spring Budget as The Chancellor prepares to slash National Insurance (NI).
Jeremy Hunt will outline the financial plan for the rest of the year, on Wednesday, including changes like tax hikes, cuts and benefits increases.
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As part of the announcement, The Chancellor is set to reveal a 2p cut to National Insurance that will come into effect in April.
This change will help 27million workers and it means that someone earning an average salary of £35,000 will save over £450.
Coupled with the two percentage point cut to the main rate of National Insurance announced in the Autumn Statement, this will be a total saving of £900.
The cut from 12% to 10% came into force in January.
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National Insurance is a tax on your earnings, and goes towards state benefits including the state pension, statutory sick pay, maternity leave and unemployment benefits.
Speaking at the weekend, Jeremy Hunt said he hopes to use the Budget to “show a path” in the direction of tax cuts, but stressed any reductions in taxation would have to be “prudent”.
The Chancellor told the BBC’s Sunday with Laura Kuenssberg programme: “I do want, where it is possible to do so responsibly, to move towards a lower tax economy, and I hope to show a path in that direction.”
The Chancellor has been under pressure to press ahead with sizable giveaways in the Budget in a bid to get Britain growing.
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The giveaway could have come in the form of a cut to income tax, but The Chancellor has gone for slashing National Insurance instead.
Over recent weeks, the PM and Chancellor Jeremy Hunt have tried to downplay more giveaways, with only around £13billion of wiggle-room available.
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The cut to National Insurance is set to cost the Treasury £10 billion a year.
Despite the cut, national insurance thresholds, which determine when you start paying each tax, are frozen until April 2028.
This means that workers end up paying more tax because their wages increase in line with inflation while tax thresholds stay the same.
Changes to Universal Credit and beer duty are also expected to be announced in tomorrow’s Budget.
What is the Budget?
The Budget is big news and where you’ll often hear announcements about taxes. But what exactly is it?
The Budget is when the Government outlines its plans for the economy including taxation and spending.
The Chancellor of the Exchequer delivers a speech in the House of Commons and announces plans for things like tax hikes, cuts, and changes to Universal Credit and the minimum wage.
At the same time the Office for Budget Responsibility (OBR) publishes an independent analysis of the UK economy.
Usually the Budget is a once a year event and usually takes place in the Autumn, with a smaller update known as the Spring Statement.
But there have been exceptions in recent years when there have been more updates, or the announcements have taken place at different times, for example during the pandemic or when there is a General Election.
On the day of the Budget, usually a Wednesday, the Chancellor is photographed outside No 11 Downing Street with the red box.
He then heads to the House of Commons to deliver his speech, at around 12.30 following Prime Minister’s Questions (PMQs).
Changes announced in the Budget are sometimes implemented the same day, while others may not have a set date.
For example, a change to tobacco duty usually happens on the same day, pushing up the price of cigarettes.
Some tax changes are set to come in at the start of a new tax year, which is April 6.
Other changes may need to pass through Parliament before coming law.
Of course, we won’t know exactly what’s coming in the Spring Budget until the day itself.
What is National Insurance?
National Insurance is a tax on your earnings, which is put into a fund to use for some state benefits.
This includes the state pension, statutory sick pay, maternity leave and unemployment benefits.
If you are a UK national, you should receive an NI number and card automatically before you turn 16.
This number allows the government to track your earnings and apply the right amount of tax.
Who pays National Insurance?
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 reach state pension age, you don’t need to pay it at all.
There are different types of National Insurance – known as “classes” -, and the type you pay depends on your employment status and how much you earn, and whether you have any gaps in your National Insurance record.
What are the NIC thresholds and how much do I pay?
The threshold for National Insurance payments is currently £12,570 a year for employed workers and £6,725 for self-employed people.
A change in April last year saw millions of workers paying 1.25% more NI, but that hike was reversed from November 6, saving workers £330 a year on average.
But rates fell from 13.25% to 12% and from 3.25% to 2% – the same as before April 2022.
If you are employed, you start paying National Insurance when you are 16 or older.
Most people now pay 12% NICs on any earnings between £242 and £967 a week.
Plus you have to pay 2% on anything you earn over £967 a week – or £4,189 per month.
Those earning less than these amounts do not have to pay any National Insurance.
The self-employed start paying when they make profits of at least £12,570 a year.
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If you’re self-employed you need to complete a self-assessment tax return and pay NICs and income tax yourself.
The exact amount you pay will depend on how much you earn as it’s a percentage of earnings between these amounts.
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This post first appeared on thesun.co.uk
