From next month most workers will see an increase in their pay packets. That's even after accounting for the recent Health and Social Care Levy.
Following the announcement in March that National Insurance rates would change, around 30 million workers should see a boost in their income from Wednesday, July 6, this is the date the tax cut will come into effect. It means that workers won't pay national insurance or income if they earn below £12,570 a year.
Earning more than this? Well, you'll still get the benefit from the cut due to the higher threshold. In fact, the change is estimated to save each employee an average of £330 in national insurance per year.
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Those who are self employed also get a helping hand. The amount of profit you can earn before you pay National Insurance contributions is also increasing.
However, the change isn't straight forward for everyone and also comes with a warning. The threshold increase could lead to state pension credits loss.
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, has been reported as saying: "Ordinarily a worker should receive an NI credit even if they earn below the threshold as long as they have earnings of more than £120 per week or £6,240 per year but it’s worth checking to make sure this is the case. The State Pension forms the backbone of most people’s retirement and therefore, they should ensure they do not incur gaps unnecessarily, which means they end up with less in retirement."
A number of benefits come with automatic National Insurance credits including Child Benefit, Universal Credit and Jobseekers Allowance. But, other benefits such as Statutory Sick Pay (SSP) will only give you credits if you apply for them. Buying a full extra year costs around £825 and will give you 1/35th of your entitlement, which, over the course of retirement can be a very good way of boosting your State Pension payments.
The move, which Chancellor Rishi Sunak described the move as the single biggest tax cut for a decade, will be welcome news for many, especially as the cost of living crisis continues to bite.
At the time, Mr Sunak said: "Around 70 per cent of all workers will have their taxes cut by more than the amount they'll pay through the new levy". The Health and Social Care levy is designed to support the NHS across the UK. It came into effect in April and equates to 1.25 percentage point increase on National Insurance Contributions.
So, just how much will your wage packet increase? There is a simple way to find out have much extra you'll actually see and that's by using the Government's online calculator, which works the figure out for you. You can access the calculator here.
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