Big tax change hitting wages from next week – how it affects you explained
MILLIONS of workers are set to see more tax taken from their pay packets from next week.
National Insurance tax is being increased by 1.25 percentage points - here is how it could affect you.
The government announced plans last year for a social levy to help fund the NHS and care home support.
The funding is coming from an increase to National Insurance tax by 1.25 percentage points.
The hikes will hit the finances of around 25million Brits, who will have to pay 1.25 percentage points extra in contributions.
There had been hopes that Chancellor Rishi Sunak would delay this tax hike in his Spring Statement last week amid the cost of living crisis.
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But the rise is set to go ahead from the start of the new tax year on April 6, meaning millions of workers will pay more tax and ultimately take home less of their salary.
Here is what you need to know.
What is National Insurance?
National insurance is a tax paid by workers above a certain level of earnings.
The contributions help fund benefits like the State Pension, sick pay and unemployment benefits.
All UK nationals receive an NI number (and NI card) automatically before they turn 16.
Your NI number helps the government track your earnings and charge the right amount of tax.
You currently pay National Insurance if you’re 16 or over and either:
- an employee earning above £184 a week
- self-employed and making a profit of £6,515 or more a year
The tax is deducted from your wages each month and you can see how much you pay on your payslip.
Once you reach state pension age, you don't need to pay National Insurance at all.
National Insurance is not the same as income tax, and you pay this separately on your earnings too.
Why is National Insurance being increased?
Several governments have tried to solve the care funding crisis in recent years and the shortfall was highlighted by the pandemic.
Prime Minister Boris Johnson announced a National Insurance levy of 1.25 percentage points last year that will help plug the £7billion funding gap.
The bump will go towards a cap on care costs - meaning that pensioners won't have to pay more than £86,000, and those with assets under £20,000 don't have to pay a thing.
How will the National Insurance tax affect you?
The extra amount you pay will depend on how much you earn.
The threshold for National Insurance payments is currently £9,568 a year for employed workers and £6,515 for self-employed people.
At the moment, most people pay 12% on anything they earn up between £184 and £967 per week. You have to pay 2% on anything you earn over £967 a week
He said: "If you're under that [amount], this is a gain, if you're over that [amount], then the two measures are a loss for you."
Martin said: "Effectively the way it works on earnings is from over around £9,600, all the way up to around £35,000, you will either not pay any more, or lower down [the pay scale], will pay less National Insurance than currently.
"If you earn £35,000 or more then the 1.25 percentage point increase outweighs the change in the starting threshold, so you will pay more National Insurance."
Figures from financial firm Tilney for The Sun have also revealed how much better off you might be from July. .
For instance someone earning £15,000 a year is currently paying £652 a year in National Insurance contributions.
From July they will typically be paying £332 - a saving of £330 a year.
For those earning £20,000 the saving is £267 a year and for £30,000 it's £142 a year.
Meanwhile anyone on a £50,000 salary will still be pay £108 more a year in National Insurance.
How to reduce your National Insurance tax bill
National Insurance is a tax on on your earnings.
So the more you earn, the more you will pay in the tax.
Obviously, no-one wants to earn less but there are ways of paying lower National Insurance from your salary.
You could use a salary sacrifice scheme through your job to make pension contributions or to pay for other company perks such as a cycle to work scheme.
This takes money, such as an amount to put into your workplace pension, from your salary before tax.
This lowers your earnings, meaning you pay less National Insurance.
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Millions of households will see their bills DOUBLE from tomorrow, when the energy price cap goes up from £1,277 to £1,971.
Could you at least be eligible for a pay rise when the minimum wage increases next month?
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Most households will also be getting a £150 council tax rebate from tomorrow to help cover the cost of rising bills too.
You've got to be in council tax bands A to D to get the cash - which amounts to around 80% of homes.
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