Budgets are like buses these days. You wait for one tooth to come and then two at once, which makes it difficult to keep track of your tax affairs. However, one of the few decisions Kwasi Kwarteng made that remains is to reverse the rise in National Insurance in April. The tax cut begins today and means nearly 30 million people will keep an average of £330 more from their paychecks next year.
what happened?
Last year, Boris Johnson’s government announced that national investment cards would rise by 1.25 pence per pound on April 6 this year. It has been described as a health and social care tax that would raise billions to fund social care and deal with the NHS backlog that has built up due to the Covid pandemic. Ministers agreed to raise the NIIC’s key rate for employees from 12% to 13.25%, while employers were required to pay 15.05%.
It was controversial at the time because it broke an explicit promise of the Conservatives’ statement not to increase value-added tax, income tax, or national insurance. In his disastrous mini-budget for September, Kwarteng scrapped the tax, one of the few decisions his replacement, Jeremy Hunt, hasn’t rolled back (not yet, anyway) as he sought to quell the financial storm unleashed by his predecessor’s radical. plans.
Who pays National Insurance?
Employees pay national insurance companies on their wages in addition to income tax, while employers also pay contributions to employees. Freelancers pay tax on their earnings. National investment firms raise a lot of money for the Treasury (£158 billion last year, according to HMRC) and use it to cover the cost of state benefits and pensions. Workers do not have to make contributions until they have earned £12,570 a year, which is the same level at which income tax begins to be charged.
What is small print?
Since the start of April, workers and employers have paid an additional £1.25. The Liz Truss government’s decision to scrap this increase brings the NI rate back to 12%. It is paid at this rate by employees who earn between £12,570 a year and just over £50,000 a year. Above that level, the rate fell from 3.25% to 2.0%. Most employees will start receiving cuts in their November payroll through their employer’s payroll, although for some workers it may be in December or January.
What does that mean to me?
The reversal turned back the clock seven months. Return to the old NIC rate saves £93 a year for someone earning £20,000, £343 for someone earning £40k, £593 for someone earning £60,000, £1,093 for 100k British pounds, according to analysts.
The government adds that this shift, along with a summer decision to raise the minimum tax threshold (from £9,880 to £12,570 a year), means – amid the worsening cost-of-living crisis – that the average worker will do £500 better a year. next.