National Insurance changes: How much can you earn before you lose out?

Chancellor Rishi Sunak put low-paid workers at the top of his agenda in his Spring Statement last week, when he revealed a number of measures to help them keep more of their hard-earned cash.

Although he stopped short of scrapping an 1.25% increase to National Insurance Contributions, which comes into effect next month, a major change to NICs means fewer people will pay the tax in the first place.

Currently, you start paying NICs when your earnings hit £9,500, but this will be raised to £12,500 from July, which will save some workers up to £330 a year in tax.

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However, these figures only kick in in July – in April, May, June and June, most people will be worse off as the increase in NICs announced in the Autumn budget starts before the threshold is raised. Rates will rise from 12% on earnings between £184 to £967 a week to 13.5% and rates on earnings over this amount will also rise from 2% to 3.25%.

On earnings of £15,000 the increase will mean paying an extra £68 a year, and for £25,000 an additional £193 from next month. For those earning £50,000, the rise will be £464.

The Chancellor said his raised threshold was “a £6bn personal tax cut for 30m people across the UK” and “the largest single personal tax cut in a decade”.

But does it cancel out the increase in National Insurance Contributions?

We’ve been crunching the figures with financial website Raisin UK to see how much workers stand to win or lose after the two announcements kick in, looking at annual salaries from £15k up to the lower national insurance band limit of £50k.

We found the change in National Insurance stands to benefit those on lower incomes at twice the rate it will affect those on higher incomes – with those who are on £15k a year keeping £24.37 more a month, and those on £50k a year paying an extra £12.09 a month. The point in which you will be worse off is once you earn a salary of £38,000, when you will not see any benefit from the announcement.

This means workers on the UK average salary of £38,600 will be pennies worse off under Mr Sunak’s new rules. However, workers earning the average salary in the North East of £27,515 will be around £11.50 a month better off.

The full list from July is below:

Annual salary: £15,000: £24.37 a month better off

Annual salary: £20,000: £19.16 a month better off

Annual salary: £25,000: £13.95 a month better off

Annual salary: £27,000: £11.87 a month better off (North East average)

Annual salary: £30,000: £8.74 a month better off

Annual salary: £35,000: £3.54 a month better off

Annual salary: £40,000: £1.67 a month worse off

Annual salary: £45,000: £6.88 a month worse off

Annual salary: £50,000: £12.09 a month worse off

Kevin Mountford, founder of Raisin UK said: “With National Living Wage set to rise to £9.50/hour, as previously announced in the Autumn Budget, the 1.25% percentage point rise to National Insurance will continue to cause concern for UK households as food prices, energy prices, and forecourt petrol prices continue to increase.

“With the threshold being raised by £3,000, it should protect people who are on the lowest incomes but will not protect all households where outgoings will continue to rise. This National Insurance tax rise just as a cost-of-living crisis hits has been criticised as the wrong tax at the wrong time, with ongoing pressure for the government to step up for households who are feeling the worst”.

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