MILLIONS of Brits will get a bumper pay rise thanks to a major tax cut which comes into force tomorrow.
The average employee is set to receive a £450 pay rise thanks to a two percentage point cut to the main rate of National Insurance (NI).
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The 12% rate of employee NI, also known as Class 1 NICs, will be cut by two percentage points on Saturday.
This change will help 27million people and it means that someone earning an average salary of £35,000 will save over £450.
But some could see their take-home income rise by up to £754 a year.
But some part-time employees earning less than £242 a week – around £12,500 a year – won’t see a change in their payslips because they don’t pay any National Insurance.
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Likewise, those over the state pension age don’t pay National Insurance, so those aged 66 and over won’t see any change in their tax rate if they still work.
The amount of NI you pay depends on your employment status and how much you earn.
If you’re employed, the company you work for will deduct the tax and pay HMRC for you.
You will be able to see your contributions on your payslip.
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Your NI number is used to make sure that the correct contributions are made to your name.
Use our calculator, created in collaboration with Blick Rothenberg, to work out how much you’ll earn when the changes come into force.
Consumer champions Which? also has a national insurance calculator on its website and you can also go to Gov.co.uk for help.
Below are some examples of the changes that both employed and self-employed workers can expect to see.
An employed person on £20,000 a year currently pays £891.60 in NICs.
From this month, when the cuts are made, they will pay £743 – a saving of £148.60.
For example, a senior nurse with 5 years of experience on £42,618 will receive an annual gain of £600.
An average full-time nurse on £38,900 will receive an annual gain of over £520.
A police officer on £44,300 will receive an annual gain of over £630.
A typical junior doctor on £63,000 will receive an annual gain of over £750.
Even a cleaner working night shifts on £21,000 will receive a gain of £170.
The average teacher on £44,300 will receive an annual gain of over £630.
And a hard-working family with two earners on the average earnings of £35,404 will be £900 better off.
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.
You can see your contributions if you’re employed by looking at your pay slip.
Once you reach state pension age, you don’t need to pay it.
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 current 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 £6,725 a year.
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If you’re self-employed, you must complete a self-assessment tax return and pay NICs and income tax yourself.
Your pay will depend on how much you earn, as it’s a percentage of earnings between these amounts.
