National Insurance tax cut kicks in today for millions of UK workers
Millions of workers will benefit from a cut to National Insurance contributions from today (January 6).
The main rate of National Insurance for employees has been reduced from 12% to 10% in a move the Government said will help around 27 million workers. An average worker earning £35,400 will get a tax cut of more than £450 in the 2024/25 tax year, while an employee earning £50,000 will save about £749.
However, the threshold for when you start paying National Insurance remains frozen until April 2028. This means more people still risk being dragged into paying tax for the first time when they get a pay rise.
National Insurance is a tax on your earnings and your contributions count toward your entitlement to benefits and the state pension in later life. If you're an employee, you now pay 10% of your income in Class 1 National Insurance contributions on earnings between £12,570 and £50,270 a year. It is this threshold which remains frozen. You pay 2% on earnings over £50,270.
Use our National Insurance calculator below to see how the changes to Class 1 contributions affect you. Please note: This does not work with Class 2 and Class 4 contributions for the self-employed.
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Sian Steele, Head of Tax at Evelyn Partners, said: "The National Insurance cut will bring a bit of New Year cheer for millions at a time when there are many pressures on household incomes. But taxpayers should put it in the context of a steady rise in the overall direct tax burden that has been driven by frozen income tax and other tax thresholds and allowances that have fallen in at least real and in some cases nominal terms since 2021/22, and will continue to erode take-home pay and disposable incomes until 2028."
If you are self-employed, you normally pay Class 2 or Class 4 contributions - and there are big changes also coming for these types of National Insurance. Class 2 contributions are currently set at a fixed weekly rate of £3.45 and are paid if your profits are more than £12,570 a year. But from April 2024, Class 2 contributions will be abolished altogether.
Class 4 contributions are currently charged at 9% on profits between £12,570 and £50,270 - but this will be reduced to 8% from April 2024. You pay 2% on profits over £50,270. You will still be able to voluntarily pay National Insurance contributions on earnings of less than £6,725 to gain access to certain benefits and the state pension.
If you earn between £6,725 and £12,750, you will still be entitled to National Insurance credits without having to pay the tax. Chancellor Jeremy Hunt says changes to both Class 2 and Class 4 contributions will save two million self-employed people around £350 a year.
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