Millions of workers must pay taxes for state benefits, known as national insurance.
but the government has announced it will cut taxes, saving millions of up to £330 a year.
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 above.
however, this hike will be removed from November 6, when rates will drop back to 12% and 2%.
foreign minister kwasi kwarteng said: “increase in employer contributions to national insurance and dividend tax will be cancelled.”
“reversing the tax means a reduction in taxes for 28 million people, with an average value of 330 pounds a year”.
comes as the chancellor announced:
- a beer price increase has been cancelled
- increased national insurance wiped out savings of up to £330 a year
- income tax cut from next April average savings of £124 a year
- reduced stamp duty for house movers and first time buyers
- an employee earning more than £242 a week
- You are self-employed and earn £6,725 or more per year
what is national insurance?
National Insurance is a tax on your income, which is put into a fund to be used for some state benefits.
This includes state pension, statutory sick pay, maternity leave, and unemployment benefits.
If you are a UK citizen, you should automatically receive a NI number and card before you turn 16.
This number allows the government to keep track of your earnings and apply the correct amount of tax.
who currently pays for it?
You pay national insurance if you are 16 or older and:
It is deducted from your salary each month.
If you’re employed, you can see your contributions by looking at your pay stub.
once you reach state retirement 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 have to pay it?
paying for national insurance entitles you to some state benefits, although these vary depending on your employment status.
If you haven’t met the minimum contribution amount, you may not qualify for some benefits.
for example, you must pay national insurance for a certain number of years to qualify for state pension.
You need at least 10 years of contributions to receive a state pension and 35 years to get the full amount.
what are the thresholds and how much do I have to pay?
The threshold for National Insurance payments is currently £12,570 a year for employed people and £6,725 for the self-employed.
Right now, most people pay 13.25% of what they earn between £242 and £967 per week. you have to pay 3.25% of everything you earn over £967 a week.
From November 6, most people will pay 12% on any earnings between £242 and £967 a week.
The chancellor’s new move will save workers an average of £135 a year in 2022, rising to £330 in 2023-24.
But, the exact amount you’ll save will depend on how much you earn.
The personal finance specialists at Hargreaves Lansdown have calculated how much people will save based on their income.
The tax cut would save someone with £15,000 £24 a year.
those with £20,000 will save £93 a year and those with £25,000 save £124 a year.
People who earn £30,000 a year will save £218 a year and those who earn £40,000 will save £343 a year.
Lowest earners, earning less than £12,570 a year, will not benefit from the change.
You pay no tax below this amount, which is your personal tax-free allowance.
The tax increase was to be included in a health and social care tax from April next year, but this too was removed.
the chancellor said: “taxing our path to prosperity has never worked. To raise the standard of living for all, we should not apologize for the growth of our economy.
“Reducing taxes is crucial to this, and whether companies reinvest the freed-up cash in new machinery, lower prices in workshops or increases in staff salaries, reversing the tax will help them grow, while allowing the British public to keep more of what they earn.”
sarah coles, personal finance expert at hargreaves lansdown, said: “at this stage, every extra penny in our pockets is welcome, so cutting national insurance will be a welcome boost to the finances of millions of taxpayers.” .
my pension expert, andrew megson, said the U-turn in increasing national insurance “will increase the amount of pay that working people take home each month.”
The chancellor arrives, announcing a series of measures to help struggling households struggling with the cost of living crisis.
Cut the stamp duty so more people can buy a house and, in turn, help revive the economy.
promising a “new era” for britain, mr. kwarteng announced 38 low tax zones for business to flourish.