MILLIONS of Britons will soon notice a pay rise when their paychecks hit their bank accounts this week.
It is the result of a two percentage point cut to the key National Insurance (NI) rate, which came into effect earlier this month.
The 12% rate for employee NI, also known as Class 1 NICs, was reduced to 10% on Saturday 6 January.
And as the first month of 2024 comes to a close, millions of workers will finally see the savings they'll realize thanks to this tax cut later this week.
You can use our calculator, created in collaboration with Blick Rothenbergto determine how much more you will earn this month.
The tax cut will help 27 million people and means someone earning an average salary of £35,000 will save more than £450.
Some could see their net income increase by as much as £754 a year.
But some part-time workers earning less than £242 a week – around £12,500 a year – will see no change in their pay slips because they don't pay national insurance.
Similarly, people over state pension age do not pay national insurance, so those aged 66 and over will see no change in their tax rate if they are still working.
The amount of NI you pay depends on your employment status and how much you earn.
If you are employed, the company you work for will withhold the tax and pay HMRC for you.
You can see your contributions on your pay slip.
Your NI number is used to ensure that the correct contributions are made into your name.
Below you will find some examples of the changes that both employees and self-employed people can expect.
A worker earning £20,000 a year currently pays £891.60 in NICs.
From this month, when the cuts come into effect, they will pay £743 – a saving of £148.60.
For example, a senior nurse with 5 years' experience at £42,618 receives an annual profit of £600.
An average full-time nurse with an income of £38,900 receives annual profits of over £520.
A police officer with an income of £44,300 receives an annual profit of more than £630.
A typical junior doctor with £63,000 receives annual profits of more than £750.
Even a night shift cleaner with £21,000 receives a profit of £170.
The average teacher with an income of £44,300 receives an annual profit of more than £630.
And a hardworking two-income family with an average income of £35,404 will be £900 better off.
What is National Insurance?
National insurance is a tax on your income, which is paid into a fund and used for certain state benefits.
This includes the state pension, statutory sick pay, maternity leave and unemployment benefits.
If you are a British national, you should automatically receive an NI number and card before you turn 16.
This number allows the government to keep track of your income and apply the correct amount of tax.
Who pays for the National Insurance?
You pay National Insurance if you are 16 years or older and:
- an employee earning more than £242 per week
- are self-employed and make a profit of £6,725 or more per year
It is deducted from your salary every month.
If you are employed, you can see your contributions on your pay slip.
Once you reach state pension age, you no longer have 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 there are any gaps in your national insurance file.
What are the current NIC thresholds and how much do I pay?
The threshold for national insurance benefits is currently £12,570 per year for salaried workers and £6,725 for the self-employed.
A change in April last year saw millions of workers pay 1.25% more NI, but that increase was reversed from November 6, saving workers an average of £330 a year.
But interest rates fell from 13.25% to 12% and from 3.25% to 2% – the same as before April 2022.
If you are employed, you pay National Insurance from the age of 16 or older.
Most people now pay 12% NICs on all earnings between £242 and £967 per week.
In addition, you must pay 2% on anything you earn over £967 per week, or £4,189 per month.
Those who earn less than these amounts do not have to pay national insurance.
Self-employed people start paying when they make a profit of at least £6,725 per year.
If you are self-employed, you will need to complete a tax return and pay NICs and income tax yourself.
Your pay depends on how much you earn, as it is a percentage of profits between these amounts.