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National Insurance calculator: What will I pay and how is tax changing? How are income tax and national insurance changing and how much do I have to pay?
(about 1 month later)
National Insurance payments were cut for millions of employees in the first week of January. There is speculation that the government might cut income tax or National Insurance (NI) in the spring Budget.
However, other changes mean the amount of tax people pay overall is rising to record levels. NI contributions have already fallen for millions of employees, with a reduction for self-employed workers due to take effect in April.
How is National Insurance changing for employees? But changes to the way tax is calculated mean that the amount of tax people pay overall is at record levels.
From 6 January, 27 million employees pay 10% on earnings between £12,571 and £50,270 during the tax year, which runs from 6 April to 5 April the following year. This replaces the previous National Insurance (NI) rate of 12%. How could income tax and NI rates change in the spring Budget?
For someone on an average full-time wage of £35,000 the cut is worth about £450 a year, according to the Institute for Fiscal Studies think tank. Chancellor Jeremy Hunt has hinted strongly that he is considering cutting income tax, despite warnings from the International Monetary Fund (IMF) and the IFS that these could be unaffordable.
Type your annual salary in the calculator below to work out how this change affects you. Cutting the main rate of income tax by 1p would cost £7bn, according to the Resolution Foundation think tank.
NI on income and profits above £50,270 will remain at 2%. The Times has suggested Mr Hunt might decide to cut NI again instead. He announced cuts to National Insurance for employees and the self-employed in the 2023 Autumn Statement.
NI is not paid by people over state pension age, even if they are working. A further 1% cut to the main NI rate would cost £4.5bn per year.
Eligibility for some benefits, including the state pension, depends on the amount of NI payments you have made. When is the Budget and what will it mean for my money?
Why are millions paying more tax?
Millions of people will pay hundreds of pounds more in tax because of changes to the tax thresholds - the levels at which people start paying income tax or have to pay higher rates.
These used to rise every year in line with inflation.
However the tax-free personal allowance - the amount you can earn every year before you have to pay income tax - has been frozen at £12,570 until 2028. Higher-rate tax will continue to kick in for earnings above £50,270.
Freezing the thresholds means that more people start paying tax and NI as their wages increase, and more people pay higher rates.
It will create 3.2 million extra taxpayers by 2028, and 2.6 million more people will pay higher rates, according to the Office for Budget Responsibility (OBR), which independently assesses the government's economic plans.
The OBR expects the government to raise £25.5bn more a year by 2027-28 than if the NI and income-tax thresholds had gone up in line with inflation.
According to the IFS think tank, by 2027-28 an employee earning £35,000 "will be paying about £440 a year more in direct tax overall as a result of all the changes to income tax and NI since 2021".
How is National Insurance changing?
Since 6 January, 27 million employees have been paying 10% on earnings between £12,571 and £50,270. They previously paid 12%.
For someone on an average full-time wage of £35,000 the IFS says the cut is worth about £450 a year.
NI on income and profits above £50,270 remains at 2%.
NI rates apply across the UK.NI rates apply across the UK.
It is not paid by people over state pension age, even if they are working.
Eligibility for some benefits, including the state pension, depends on the NI payments you have made.
How is National Insurance changing for the self-employed?How is National Insurance changing for the self-employed?
From 6 April 2024, two million self-employed people will pay 8% on profits between £12,571 and £50,270, down from 9%.From 6 April 2024, two million self-employed people will pay 8% on profits between £12,571 and £50,270, down from 9%.
From the same date, the self-employed will no longer pay a separate category of NI called Class 2 contributions. From the same date, they will no longer pay a separate category of NI called Class 2 contributions.
The government says the two measures will be worth £350 a year for a self-employed person earning £28,200.The government says the two measures will be worth £350 a year for a self-employed person earning £28,200.
What is happening to National Insurance thresholds? What are the current income-tax rates?
The level of income at which you start paying NI (the threshold) has been frozen at £12,570 until 2028. Income tax is paid on earnings from employment and profits from self-employment during the tax year, which runs from 6 April to 5 April the following year.
It means that as wages rise, more people will have to pay NI.
Why are millions paying more income tax?
As wages rise, more people will also have to start paying income tax, and a greater number will have to pay higher rates.
This is because, as with NI, thresholds are being frozen until 2028.
The tax-free personal allowance is staying at £12,570. (Most taxpayers do not pay any tax on income below this level).
The point at which higher tax rates take effect is also frozen at £50,271.
The freezes will create 3.2 million extra taxpayers by 2028, and 2.6 million more people will pay higher rates of tax. That's according to the Office for Budget Responsibility (OBR), which independently assesses the government's economic plans.
It expects the policy to raise £25.5bn more a year by 2027-28 than if the NI and income tax thresholds had gone up in line with inflation.
According to the IFS economic think tank, by 2027-28 an employee earning £35,000 "will be paying about £440 a year more in direct tax overall as a result of all the changes to income tax and NICs since 2021".
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What are the current rates of income tax?
You pay income tax to the government on earnings from employment and profits from self-employment.
Income tax is also paid on some benefits and pensions, income from renting out property, and returns from savings and investments above certain limits.Income tax is also paid on some benefits and pensions, income from renting out property, and returns from savings and investments above certain limits.
These rates apply in England, Wales and Northern Ireland: The Basic rate is 20% and is paid on annual earnings between £12,571 and £50,270.
The basic rate of income tax is 20% and is paid on earnings between £12,571 and £50,270 during the tax year. The Higher rate is 40%, and is paid on earnings between £50,271 and £125,140.
The higher rate of income tax is 40%, and is paid on earnings between £50,271 and £125,140. Once you earn more than £100,000, you also start losing your tax-free personal allowance.
Once you earn more than £100,000 a year, you also start losing your tax-free personal allowance. This means you have to pay income tax of 40% on some of the first £12,570 of your earnings. You lose £1 of your personal allowance for every £2 that your income goes above £100,000.
You lose £1 of your personal allowance for every £2 that your income goes above £100,000. So if you earn more than £125,140 a year, you no longer get any tax-free personal allowance. Anyone earning more than £125,140 a year no longer has any tax-free personal allowance.
The additional rate of income tax is 45%, and is paid on all earnings above £125,140 a year.The additional rate of income tax is 45%, and is paid on all earnings above £125,140 a year.
Income tax rates, thresholds and personal allowances These apply in England, Wales and Northern Ireland.
Check your income tax code and personal allowance Some rates are different in Scotland.
How is tax different in Scotland? The Scottish Government has already announced that a new 45% band will take effect from April 2024. The top rate will also rise from 47% to 48%.
Some income tax rates are different in Scotland.
From April 2023 the rates are:
Tax-free personal allowance: £12,570 (reduced by £1 for every £2 earned above £100,000)
Starter rate of 19%: £12,571 to £14,732
Scottish basic rate of 20%: £14,733 to £25,688
Intermediate rate of 21%: £25,689 to £43,662
Higher rate of 42%: £43,663 to £125,140
Top rate of 47%: above £125,140
In December, the Scottish government announced a new "advanced" rate of 45% for those earning between £75,000 and £125,140. The top rate of tax will also increase to 48%.
From April 2024, the new rates will be:
Tax-free personal allowance: £12,570 (reduced by £1 for every £2 earned above £100,000)
Starter rate of 19%: £12,571 to £14,876
Scottish basic rate of 20%: £14,877 to £26,561
Intermediate rate of 21%: £26,562 to £43,662
Higher rate of 42%: £43,663 to £75,000
Advanced rate of 45%: £75,001 to £125,140
Top rate of 48%: above £125,140
The Scottish government estimates that 114,000 people will pay the new advanced tax rate and a further 40,000 the top rate.
Who pays most in income tax?Who pays most in income tax?
For most families, income tax is the single biggest tax. For most families, income tax is the single biggest tax they pay.
But for poorer households, a greater share of family income goes on taxes on spending (indirect taxes). But for less well-off households, a greater share of family income goes on taxes on spending, known as indirect taxes.
For the poorest fifth of households, VAT is the biggest single tax paid.For the poorest fifth of households, VAT is the biggest single tax paid.
How high are UK taxes historically? How do UK taxes compare with other countries like France and Germany?
One way of measuring how high overall taxes are is to compare them with the size of the economy. You can look at the amount of tax raised as a proportion of the size of the economy, or GDP.
At the time of the 2023 Autumn Statement, the OBR said they would rise "in each of the next five years to a post-war high of 38% of GDP". In 2022 - the most recent year for which international comparisons can be made - that figure was 35.3%.
How do UK taxes compare with other countries?
If you look at the amount of tax raised as a proportion of the size of the economy in 2022 - the most recent year for which international comparisons can be made - the figure was 35.3%.
That puts the UK right in the middle of the G7 group of big economies.That puts the UK right in the middle of the G7 group of big economies.
France, Italy and Germany tax more, Canada, Japan and the US tax less. France, Italy and Germany tax more; Canada, Japan and the US less.
So in comparison with other countries, the UK is not that highly taxed.
However, it is by its own track record.
At the time of the 2023 Autumn Statement, the OBR said taxes would rise "in each of the next five years to a post-war high of 38% of GDP".
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