MILLIONS of workers will get a pay rise today as a major tax change come into force.
The wage boost is fueled by a 1.25 percentage point cut to National Insurance which came into effect yesterday (November 6).
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The former chancellor Kwasi Kwarteng first announced that the 1.25 percentage point hike to National Insurance would be reversed in his infamous mini-Budget in September.
The move is one of few economic policies introduced by Liz Truss and Mr Kwarteng that was not axed by the new Chancellor Jeremy Hunt.
The 1.25 percentage point rise was first devised by PM Rishi Sunak when he was chancellor to pay for social care and deal with the NHS backlog.
And the rise in National Insurance contributions took effect in April.
But its reversal means that the average worker will now get a £330 pay boost over the next year.
And now, personal finance specialists at Hargreaves Lansdown have worked out exactly how much people’s wages will be boosted thanks to the tax cut.
How much more of your wages, you’ll keep will depend entirely on how much you earn.
MoneySavingExpert.com and Which? both have calculators which help you work out exactly how much National Insurance you pay based on your wage.
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Lower earners, on less than £12,570 a year, won’t benefit from the change.
That’s because you don’t pay any NICs under this amount which is also your tax-free personal allowance for income tax.
But Hargreaves Lansdown has revealed exactly how much more money you’ll keep if you’re on the following salaries:
- Workers on £20,000 will take home an extra £93 a year
- Workers on £30,000 will take home an extra £218 a year
- Workers on £40,000 will take home an extra £343 a year
- Workers on £50,000 will take home an extra £468 a year
- Workers on £60,000 will take home an extra £593 a year
- Workers on £80,000 will take home an extra £843 a year
- Workers on £100,000 will take home an extra £1,093 a year
You won’t see the cash all at once in your paycheck. Instead, you’ll see the amount you pay each month reduced.
So based off the figures above, households will take home the following extra amount each month:
- Workers on £20,000 will take home an extra £7.75 a month
- Workers on £30,000 will take home an extra £18.17 a month
- Workers on £40,000 will take home an extra £28.58 a month
- Workers on £50,000 will take home an extra £39.00 a month
- Workers on £60,000 will take home an extra £49.42 a month
- Workers on £80,000 will take home an extra £74.42 a month
- Workers on £100,000 will take home an extra £91.08 a month
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 currently pays it?
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 £6,725 or more 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 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.
Workers now pay 12% on anything they earn up between £242 and £967 per week. You have to pay 3.25% on anything you earn over £967 a week.
