MILLIONS of households will save hundreds every year after the Government confirmed a cut to National Insurance contributions.
The average household will save £135 a year thanks to the tax cut.
The Treasury confirmed that a 1.25% point increase to National Insurance will be scrapped from November 6.
The hike was first introduced in April and pushed up rates to 13.25% and 3.25%.
The move will save workers an average of £135 a year in 2022, rising to £330 in 2023-24.
But, the exact amount that you will save will depend on how much you earn.
Personal finance specialists at Hargreaves Lansdown have worked out how much people will save based off their earning.
The tax cut would see an individual on £15,000 save £24 a year.
Those on £20,000 will save £93 a year and those on £25,000, £124 a year.
Individuals earning £30,000 a year will save £218 a year and those on £40,000 will save £343 a year.
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Lower earners, on less than £12,570 a year, won’t benefit from the change.
You don’t pay any tax under this amount which is your tax-free personal allowance.
The tax rise was due to be branded under a Health and Social Care Levy from April next year, but this has also been scrapped.
The Chancellor said: “Taxing our way to prosperity has never worked. To raise living standards for all, we need to be unapologetic about growing our economy.
“Cutting tax is crucial to this – and whether businesses reinvest freed-up cash into new machinery, lower prices on shop floors or increased staff wages, the reversal of the Levy will help them grow, whilst also allowing the British public to keep more of what they earn.”
Sarah Coles, personal finance expert at Hargreaves Landsdown said: “At this stage, every extra penny in our pockets is welcome, so the National Insurance cut will come as a welcome boost for the finances of millions of taxpayers.”
What is National Insurance?
National Insurance is a tax on your earnings, which is put into a fund to use for some state benefits.
This includes the state pension, statutory sick pay, maternity leave and unemployment benefits.
If you are a UK national, you should receive an NI number and card automatically before you turn 16.
This number allows the government to track your earnings and apply the right amount of tax.
Who currently pays it?
You pay National Insurance if you’re 16 or over and either:
- an employee earning above £242 a week
- self-employed and making a profit of £6,725 or more a year
It is deducted from your wages each month.
If you’re employed, you can see your contributions by looking at your pay slip.
Once you reach state pension 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.
What are the thresholds and how much do I pay?
The threshold for National Insurance payments is currently £12,570 a year for employed workers and £6,725 for self-employed people.
At the moment, most people pay 13.25% on anything they earn between £242 and £967 per week. You have to pay 3.25% on anything you earn over £967 a week.
From November 6, most people will pay 12% on anything earnings between £242 and £967 a week.