National Insurance Rates What Are They & How They Affect Your Pay Packet?
Staff Writer, Halal Incorp
What is national insurance, and who stands to gain from Jeremy Hunt’s proposed cuts?
In the spotlight of the autumn statement, we delve into the intricacies of this complex UK tax system. At the heart of Jeremy Hunt’s recent autumn statement was a substantial reduction in the main rate of national insurance contributions for workers, dropping from 12% to 10% effective January 6, 2024.
6 Figures In 6 Weeks, Find Out How: Click Here
The Chancellor asserts that this move will benefit around 27 million individuals. Additionally, adjustments to national insurance for the self-employed were unveiled.
National insurance functions analogously to income tax, deducted from salaries or, for the self-employed, managed through self-assessment. Distinct from income tax, it applies solely to earned income, excluding earnings from shares or pensions.
For employees, it is levied per job rather than aggregated across total income. Consequently, those with multiple low-paying positions may contribute less than someone earning an equivalent sum from a single role. Employers also contribute to national insurance, unlocking certain benefits, including access to the state pension.
National Insurance Rates
The system is intricate, featuring multiple classes tailored for employees, employers, and the self-employed, with both mandatory and voluntary payments. Class 3, for instance, is voluntary and involves contributions made by individuals aiming to bolster their benefit entitlement.
National insurance is obligatory for individuals aged 16 to the state pension age and contributes to the national insurance fund, utilized for benefits but not isolated from government expenditure.
6 Figures In 6 Weeks, Find Out How: Click Here
For clarity on individual payments, employees earning above £242 weekly or £1,048 monthly pay 12% in class 1 national insurance contributions.
This rate drops to 2% on earnings exceeding £967 weekly or £4,189 monthly. Self-employed individuals with an annual profit of £12,570 or more pay class 2 and class 4 contributions based on a sliding scale related to their profits.
National insurance essentially secures entitlement to various state benefits, such as the basic state pension, employment and support allowance, maternity allowance, and bereavement support payment.
Regarding the proposed changes for employees, the main rate of class 1 national insurance will decrease to 10% from January 6, 2024.
The Treasury estimates that an average earner of £35,400 will experience a tax cut exceeding £450 in the 2024-25 fiscal year. A typical full-time nurse earning £38,900 could gain over £520 annually, and working families with two earners at the average income level might see a £900 increase.
Conversely, critics argue that the government, while providing tax relief through national insurance cuts, counterbalances this by freezing personal income tax thresholds until 2028. This, they contend, could result in individuals paying more in other taxes.
National Insurance Rates
For self-employed individuals, starting April 2024, class 2 contributions will be eliminated, and the main rate for class 4 contributions will reduce to 8%. The Chancellor asserts that these modifications would save a self-employed person with profits of £28,200 approximately £350 in the 2024-25 fiscal year.
However, these adjustments do not fully offset the freeze on income tax thresholds. The government’s decision not to alter income tax means that the freeze on personal tax thresholds until 2028 still applies. According to the Office for Budget Responsibility, the 2p reduction in national insurance will only offset a quarter of the personal tax-raising measures implemented by the government since 2021, which encompass freezes on allowances and national insurance thresholds.