MILLIONS of workers will get to keep more of their salary after a major change to National Insurance.
It comes just months after the National Insurance rate of tax was hiked in April.
Everyone receives a National Insurance number when they are 16
Since April, workers have paid 13.25% National Insurance Contributions (NICs) on earnings between £9,564 and £50,268 and a further 3.25% on wages over that.
The rate went up from 12% in April with the introduction of a new social care levy.
But today the threshold at which you start paying NICs has been increased to £12,570 meaning an effective pay rise for millions of people.
Workers now pay the tax on earnings above £12,570.
As a result, an extra 2.2million workers will no longer pay any NICs at all.
Millions more will take home up to £330 extra a year as a result of the change.
Higher earners, however, will pay more.
Here’s everything you need to know about the current National Insurance rates:
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.
Why do I need to pay it?
Paying National Insurance entitles you to some state benefits, though these vary according to your employment status.
If you haven’t met the minimum amount of contributions, you may not qualify for some benefits.
For instance, you need to pay National Insurance for a set number of years to be entitled to receive the state pension.
You need at least 10 years worth of contributions to get any state pension at all, and 35 years to get the full amount.
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.
At the moment, most people 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.
However, these thresholds are changing in July, which will protect some people against the impact of the rate rise.
For example, if you earned £15,000 a year
- You pay nothing on the first £12,570
- 13.25% on the rest of your salary
- Your total annual NICs are £27 a month, or £321 a year
- You save £337 a year under the new threshold
If you earned £60,000 a year
- You pay nothing on the first £12,570
- You pay 13.25% on your earnings between £12,570 and £50,268
- You pay 13.25% + 3.25% (16.5%) on your earnings above £50,268
- Your total annual NICs are £443 a month, or £5316 a year
- You pay an extra £84 a year under the new threshold
It’s worth noting that these figures are estimates and the actual amount you pay will depend on other factors such as pension contributions.
If you earn between £120 and £242 a week, your contributions are treated as having been paid to protect your National Insurance record.
You’ll pay less if:
- you’re a married woman or widow with a valid ‘certificate of election’
- you’re deferring National Insurance because you’ve got more than one job