The cost of living crisis deepened this week after the Office for National Statistics showed UK inflation as measured through the CPI hit a record high of 9.1% in May 2022 - the worst rate in Western Europe.
So when is this tax cut coming into force - and how much could it save you?
Here’s what you need to know.
What is National Insurance?
National Insurance is a tax most working people pay out of their monthly pay packets.
These contributions are used by the government to fund state pensions as well as other state benefits, such as Universal Credit.
What you pay depends on how much you earn and whether you’re employed or self-employed, but everyone can earn a certain amount of money before having to pay anything.
This is known as the National Insurance threshold.
How are National Insurance contributions changing?
The threshold for National Insurance contributions was £9,880 but Rishi Sunak has increased this to £12,570 for those people categorised as Class 1 (employed) and Class 4 (self-employed).
What this change means is that you can earn an extra £2,690 before paying anything towards National Insurance.
You will still pay a rate of 13.25% on anything earned between the new threshold and £50,270.
Any salary you take home over £50,270 is charged at 3.25%.
According to the government, the new threshold means almost 30 million workers - around 70% of the UK workforce - will pay less in tax.
This is despite the introduction of the health and social care levy, which has pushed up National Insurance contributions by 1.25%.
Here’s an estimation of what you will pay annually depending on how much you earn (according to the government):
- £20,000: you will pay £983.64 (£291 less than the £1,274.61 due in 2021/22)
- £30,000: you will pay £2,308.68 (£197 less than the £2,505.84 due in 2021/22)
- £40,000: you will pay £3,633.72 (£103 less than the £3,737.10 due in 2021/22)
- £50,000: you will pay £4,958.64 (£10 less than the £4,968.36 due in 2021/22)
- £60,000: you will pay £5,310.48 (£84 more than the £5,226.39 due in 2021/22)
Given National Insurance is paid on commission or bonuses, overtime, sick pay, maternity, paternity and adoption pay, as well as salary for Class 1 employees, the above figures may be differ from what tax you actually pay.
These figures also do not take into account the three months of the heightened rate of National Insurance contributions introduced in April as a result of the health and social care levy.
If you want to check how your specific salary will be impacted, the government has a National Insurance calculator on its website.
When will National Insurance contributions change?
The date from which the National Insurance threshold will go up is 6 July 2022.
The policy will be in place until 5 July 2023, by which time the government and economic experts predict the UK cost of living crisis will have improved from this year’s record levels.