How will the National Insurance reversal effect you?
Paul Lewis explains what the reversal of the National Insurance hike coming into effect in November will mean for you
The new Chancellor, Jeremy Hunt has confirmed that, from this week, National Insurance contributions deducted from wages and salaries for people aged under 66 will fall. From 6 November, the rate of 13.25% on pay above £242 a week (£12,570 a year) will drop to 12%, which is a cut of around 9.5% in the amount due on that pay. Higher pay above £967 a week (£50,270 a year) is currently taxed at 3.25%. That rate will fall to 2% – a cut of 38.5% in the deduction made.
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People aged 66 or more do not pay National Insurance – and the threat of a 1.25% levy from April on pay above £242 has, for now at least, been removed. The change will mean more money in pay packets. Some employers may not calculate it correctly until December but it will be backdated to 6 November. The average gain in a full year is put by the Treasury at £330.
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That figure is misleading – as it would apply to someone earning £38,970 a year, which is way above current average pay. The Office for National Statistics puts average pay at £574 a week (£29,848 a year) without bonuses. On that pay the saving in a full year would be £216. The less you earn the less you save. People who work full time (371 /2 hours) on the current National Living Wage of £9.50 an hour would save £74 a year or just £1.43 a week. MPs who passed this change recently will save £895 a year. Self-employed people have a more complex calculation in 2022/23 to take account of the increase – to £12,570 a year (£242 a week) – in the threshold at which National Insurance contributions begin on 6 July and the November cut in the rates.
This tax year they must use what the Treasury calls “blended” amounts – a threshold of £11,908 and rates of National Insurance which are 9.73% up to that level and 2.73% for income above it. They are called Class 4 contributions. Self-employed people also pay Class 2 contributions of £3.15 a week. Those stop at the age of 66. But the Class 4 contributions must be paid for the whole tax year in which that age is reached.
QUESTIONS? Send any questions to Paul.Lewis@radiotimes.com. Paul cannot answer you personally, but will reflect them in his column