06 March 2024 , 13:54
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National Insurance is a regular tax on earnings and is paid by millions of workers who earn over a certain threshold.
Jeremy Hunt today announced a 2p cut in National Insurance as part of his Budget, in a move that will save the average worker around £450 a year. If confirmed, it would be the second cut in National Insurance implemented by the current Chancellor.
However, the threshold for which you start paying National Insurance is currently frozen until 2028. This means more people end up paying more tax over time when they get a pay increase and earn more money. You currently pay 10% on earnings between £12,570 and £50,270 in Class 1 contributions but this will be reduced to 8% from April 6.
How much you pay in National Insurance depends on how much you earn. There are also different types of contributions depending on if you're employed or self-employed. You can find out how much you'll save in National Insurance if you're an employee and you pay Class 1 contributions below:
How much do we pay in National Insurance?
If you're an employee and you're over the age of 16, then you start to pay National Insurance when you earn more than £12,570 a year. Jeremy Hunt has come under pressure to reduce the threshold for which you start paying National Insurance, which is currently frozen until 2028.
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This frozen allowance means more people are dragged into paying tax over time when they get a pay increase and earn more money. You currently pay 10% on earnings between £12,570 and £50,270 in Class 1 contributions. This is being reduced to 8% from April 6. You pay 2% on earnings over £50,270.
If you're self-employed, you're subject to National Insurance when you start making over £12,570 in profit per year. Self-employed Brits normally pay Class 2 or Class 4 contributions, however, the Chancellor announced in his Autumn Statement that he will abolish Class 2 contributions from April this year. Class 4 contributions are also being reduced.
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. Class 4 contributions are currently charged at 9% on profits between £12,570 and £50,270 - but this will be cut to 6% from April. You pay 2% on profits over £50,270.
There are also Class 3 contributions, which are voluntary payments if you need to plug gaps in your National Insurance record. Both employed and self-employed Brits can choose to pay Class 3 contributions. It currently costs £824 to buy a full National Insurance year.
National Insurance is expected to be cut again (Western Mail)Do you agree with the cut to National Insurance? Vote in our poll HERE to have your say.
What does National Insurance get used for?
National Insurance is used to fund benefits and social care. It is the tax you'll need to pay if you want to qualify for the state pension in later life. If you have not made the minimum number of contributions, you might not qualify for all benefits.
The benefits it pays for includes New Style Jobseeker’s Allowance, Contribution-based Employment and Support Allowance, Maternity Allowance and Bereavement Support Payment.