Huge tax change for 27million workers from TODAY – see how much better off you’ll be
MILLIONS of workers will get a hefty income boost from today, thanks to a big tax change.
A typical employee earning £35,000 will pocket a £450 pay rise, as the main rate of National Insurance Contributions (NIC) today falls by two percentage points from 12% to 10%.
Around 27million people will be better off from tax cuts for workers.
Some employees could take home an extra £600 as a result of the changes.
For example, a police officer on £44,300 will see an added £630, according to the Treasury.
Whereas an average full-time nurse on £38,900 will get more than £520 extra.
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And a typical junior doctor on £63,000 will see a gain of around £750.
A cleaner on £21,000 can expect an added £170.
It means that a family with two earners on an average salary of £35,404 will be £900 better off.
It’s not just employees who are set for extra cash.
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The self-employed can also expect to get up to £350 extra as NI contributions are revised.
From April 2024 the government is axing Class 2 NI contributions saving workers an average £192 a year.
Class 2 NI is a flat rate compulsory charge, currently £3.45 a week, paid by self-employed people earning more than £12,570 to give state pension entitlement.
There will also be a one percentage point cut from Class 4 contributions in a move that will save two million self-employed workers a total of £350 a year from April.
Chancellor Jeremy Hunt said the pre-election cut means families with two earners are nearly £1,000 better off.
Mr Hunt said: "Today’s cut in national insurance by 2% means that a typical family with two earners will be nearly a thousand pounds better off this year.
"That is really important in a cost-of-living crisis where people have been feeling real pressure on family budgets, but also it rewards work, it'll bring more people into the labour force, and that is good for growing the economy."
Prime Minister Rishi Sunak, who has said he wants to keep cutting people's taxes if possible, said it was possible because of the “tough decisions” taken by the Government.
HMRC are publishing an online tool, the Treasury said, to help people see how much they can save this year on national insurance contributions.
But finance experts and economists have said frozen tax thresholds, which have been pushing people into higher tax brackets, will offset the national insurance boost for many people.
Think tank the Resolution Foundation expects the biggest gains from this year's tax changes will be for people earning about £50,000, who will particularly benefit from the rate cut, while still losing out somewhat from the personal allowance freeze.
Adam Corlett, principal economist at the think tank, said cutting national insurance was a "smarter choice than the options of cutting income tax or inheritance tax".
"But for many, particularly those earning less than £26,000, the tax cut today will be offset by the tax rise that is effectively coming in April, when personal tax thresholds are frozen again."
Clare Stinton, head of workplace savings at Hargreaves Lansdown, echoed this.
"The two (percentage point) cut may seem like a lifeline to households post-holiday season but the reality is that for some employees this reduction will be offset by the freezing of personal tax threshold," she said.
What is National Insurance?
National Insurance is a tax on earnings that is used to fund some state benefits including the state pension, statutory sick pay, maternity leave and unemployment benefits.
UK nationals receive an NI number and card automatically before turning 16.
The 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.
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.
Rates fell from 13.25% to 12% and from 3.25% to 2% - the same as before April 2022.
Most people currently 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 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.