Currently, you pay 10% of National Insurance on your yearly earnings between £12,570 and £50,270 – this is called Class 1 National Insurance contributions. However, from Saturday April 6, the starting rate for National Insurance will be cut by 2% to 8%
The amount you pay for National Insurance will be cut for the second time this weekend.
Currently, employees pay 10% of National Insurance on your yearly earnings between £12,570 and £50,270 in Class 1 contributions. However, from Saturday April 6, this rate will be cut to 8%. The cuts were announced in the Spring Budget with Chancellor Jeremy Hunt saying they would benefit around 27million people.
The tax is also being cut for two million self-employed workers, who pay Class 4 contributions. This will be cut from 9% to 6%. If you earn above £50,270 a year – either through being employed or through self employment – you pay 2% in National Insurance contributions and this will remain the same from April.
The average person earning £35,000 will have an extra £450 a year from the cut, while the average self-employed worker earning £28,200 will have £350. Class 2 National Insurance contributions – which is a class you may pay if you are self-employed – will also be scrapped from April 6.
Even though the Government says the move will give people more money in their pockets, it’s important to know that the tax bands – the threshold when you start paying National Insurance and income tax – remain frozen. The thresholds used to rise each year with inflation but due to the freeze, more people start paying taxes as their wages increase, and more people start paying higher rates.
This means many Brits may not see a major benefit from the National Insurance cuts. Those who do not make enough money to start paying National Insurance and those who claim the state pension will not see any benefit from the cuts this weekend.
What is National Insurance?
National Insurance is a tax you pay on your earnings. The money from National Insurance is used to pay for things such as the state pension, and statutory sick pay. It is also used to fund the NHS. You only pay National Insurance when you are over 16 years old and earn above £12,570 a year.
You stop paying the tax altogether when you reach the state pension age. The amount of National Insurance you pay is dependent on how much you earn and how you are paid. If you’re employed, national insurance contributions are usually taken automatically as part of your monthly or weekly tax deductions alongside income tax.
If you are self employed, you pay National Insurance if you earn a profit of more than £12,570 and you usually pay your contributions through an annual self-assessment. As mentioned earlier, if you earn over £50,270 a year you pay National Insurance at the rate of 2%.
National insurance rates are divided into “classes” based on your earnings and employment status. For instance, employees usually fall into the Class 1 category, while self-employed people may be considered Class 4. Besides funding certain benefits, National Insurance Contributions (NICs) also help you qualify for certain benefits too.
To get the state pension you will need to have paid National Insurance for a certain amount of years. If you do not work because you are a full time parent, carer, or claim benefits for example, you might be able to receive National Insurance credits instead, which mean you will still qualify for the relevant benefits. You can also make voluntary contributions to plug gaps in your record.
