Chancellor Kwasi Kwarteng has announced that the rise in national insurance (NI) contributions – a move credited to Boris Johnson’s government – will be reversed.
The 1.25 per cent hike in national insurance, which was imposed by his predecessor Rishi Sunak in April, will be reversed from 6 November.
Ex-chancellor Mr Sunak, who came second in the Conservative leadership race, devised the strategy in April to help fund social care and to deal with the growing NHS backlog. But Prime Minister Liz Truss, pledged to change course.
What is National Insurance?
National Insurance is a tax that is paid by the employers, employees and the self-employed – the employers pay NI contributions of the staff they hire, the employees pay on their wages, and the self-employed on their profits.
The NI contributions of everyone above the age 16 are placed in a fund, from which some state benefits are paid such as state pension, statutory sick pay, maternity leave, or unemployment benefits.
Mandatory NI contributions apply when you are employed with earnings above £242 a week or self-employed with a profit of £6,725 or more a year. It is only payable on earnings and not on investment income.
How much money can I save with the NI contribution reversal?
Most employees will see the difference following the tax cut in their November pay packets, but given the complexity of other employer’s payroll software, some will instead see tax cuts in December or January.
The Treasury said that the NI reversal will help around 28 million people keep a little more money in their pockets, allowing them to save on average £330 a year. However, this move will not provide those on the lowest incomes with any extra assistance.
Here’s how much you could save a year depending on your annual salary:
- On a £20,000 salary, you will save £92.88 a year, paying £891.60, rather than £984.48
- On a £30,000 salary, you will save £217.88 a year, paying £2,091.60, rather than £2,309.48
- On a £40,000 salary, you will save £342.88 a year, paying £3,291.60, rather than £3,634.48
- On a £50,000 salary, you will save £467.88 a year, paying £4,491.60, rather than £4,959.48
- On a £60,000 salary, you will save £592.88 a year, paying £4,718.60, rather than £5,311.48
- On a £70,000 salary, you will save £717.88 a year, paying £4,918.60, rather than £5,636.48
- On a £80,000 salary, you will save £842.88 a year, paying £5,118.60, rather than £5,961.48
- On a £90,000 salary, you will save £967.88 a year, paying £5,318.60, rather than £6,286.48
- On a £100,000 salary, you will save £1,092.88 a year, paying £5,518.60, rather than £6,611.48
- On a £110,000 salary, you will save £1,217.88 a year, paying £5,718.60, rather than £6,936.48
- On a £120,000 salary, you will save £1,342.88 a year, paying £5,918.60, rather than £7,261.48
- On a £130,000 salary, you will save £1,467.88 a year, paying £6,118.60, rather than £7,586.48
- On a £140,000 salary, you will save £1,592.88 a year, paying £6,318.60, rather than £7,911.48
- On a £150,000 salary, you will save £1,717.88 a year, paying £6,518.60 rather than £8,236.48