MILLIONS of workers will be able to keep more of their hard-earned cash thanks to a major tax cut that comes into force tomorrow.
The average worker is set to receive a £330 pay boost thanks to a cut in the rate of National Insurance contributions.
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A 1.25 percentage point increase to National Insurance will be scrapped from Sunday.
The rise in National Insurance contributions (NICs) took effect in April this year but will be reversed tomorrow (November 6) putting more money back in people’s pockets.
Around 28 million workers across the UK are set to keep an extra £330 a year on average.
But the exact amount better of you’ll be will depend on how much you earn.
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.
National Insurance is paid by employees over the age of 16 and earning above £242 a week.
It’s also paid by self-employed Brits making a profit of £6,725 or more a year.
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The change to the rate is also set to benefit 920,000 businesses, which will keep almost £10,000 a year on average.
Moat workers will see the tax cut from this month’s pay packet onwards, but some will see it backdated in December or January.
Scrapping the National Insurance hike is one of only a few policies that survived former Prime Minister Liz Truss’ mini-Budget
Newly installed Chancellor Jeremy Hunt announced several U-turns on the tax cuts announced by the previous Chancellor Kwasi Kwarteng, which had shocked markets as they were unfunded.
But the reversal of the health and social care levy is one of only a handful of changes that Mr hunt did not backtrack on.
Below we outline what the reversal will mean for you and explain exactly what National Insurance is.
How much will you save from the National Insurance change?
The exact amount that you will save will depend on how much you earn.
Personal finance specialists at Hargreaves Lansdown have worked out how much people will save based on their earnings.
- Workers on £20,000 will save £93 a year
- Workers on £30,000 will save £218 a year
- Workers on £40,000 will save £343 a year
- Workers on £50,000 will save £468 a year
- Workers on £60,000 will save £593 a year
- Workers on £80,000 will save £843 a year
- Workers on £100,000 will save £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.
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 £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 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.
At the moment, most people pay 13.25% on anything they earn between £242 and £967 per week. You have to pay 3.25% on anything you earn over £967 a week.
From November 6, most people will pay 12% on any earnings between £242 and £967 a week.
The National Insurance hike reversal is just one of the changes to people’s money taking place this month.
Including the second half of the £650 cost of living payment being dished out from next Tuesday (November 8).
