Personal Finance

Millions of workers given National Insurance tax cut - how is your salary affected?

A new cut in the National Insurance tax has come into force this month benefiting 30 million working people - but not all employees will see more money in their pockets.

The rate at which people start paying National Insurance has risen from £9,880 to £12,570 as of July 6 2022.

It means the majority of working people will receive a cash boost of up to £330 a year. This is despite the percentage rise in National Insurance contributions enforced to pay for the Health and Social Care Levy.

According to Treasury estimates, the average nursery assistant will receive an extra £343 in their pay slips over the next year, bricklayers £218, and £324 for care workers.

Looking at average earnings, 76% of National Insurance payers in the North East, Yorkshire and the Humber will be better off, 75% in the North West, and 62% in London.

However, the estimates don't take into account the real-terms loss in wages due to soaring inflation.

And not everyone will be better off. Using the Treasury's own calculator, people will start to pay more in National Insurance contributions if they earn more than £51,000. The calculator is a simple way to find out how much you will save, or be forced to pay.

Those who already do not pay National Insurance contributions include those who are over state pension age, although they will be forced to pay the 1.25% Health and Social Care Levy from April 2023.

Kevin Brown, savings specialist at investment firm Scottish Friendly pointed out the amount people are losing in reality when looking at inflation levels.

He said: "A worker on an income of £30,000 can expect to see £142 less in National Insurance payments for the 2022-23 tax year. With CPI inflation currently at 9.1 percent while average wages (excluding bonuses) grow at 4.2% - anyone earning £30,000 will see their spending power eroded by £1,470 in the next year, way beyond what the National Insurance increase will compensate for, and still £1,328 worse off overall."

Prime Minister Boris Johnson said on the day of the new tax break coming into force: "We know it’s tough for many families across the UK, but we want you to know that this government is on your side.

“Today’s tax cut means around 70 percent of British workers will pay less National Insurance - even after accounting for the Health and Social Care Levy that is funding the biggest catch up programme in NHS history and putting an end spiraling social care costs.

“So whether you are a receptionist, work in hospitality or are a delivery driver, this tax cut is likely to make you and your family better off.”

Erin Yurday

Erin Yurday is the Founder and Editor of NimbleFins. Prior to NimbleFins, she worked as an investment professional and as the finance expert in Stanford University's Graduate School of Business case writing team. Read more on LinkedIn.


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