After a tumultuous 2022 for National Insurance changes, the 2023/24 tax year should provide a more stable landscape for your NI contributions.
On 23 September 2022, the then Chancellor Kwasi Kwarteng announced that the temporary 1.25% National Insurance contributions (NIC) rate increase that came into effect in April 2022 would be reversed from 6 November 2022 for the rest of the financial year.
This came mere months after former Chancellor – and current Prime Minister – Rishi Sunak increased the National Insurance Primary Threshold to £12,570, and reduced Class 2 NIC payments to nil between the Small Profits Threshold and Lower Profits Limit, in July 2022.
Kwarteng also announced that the proposed introduction of a 1.25% Health and Social Care Levy, set to come into effect in April 2023, would similarly be scrapped.
Current Chancellor Jeremy Hunt has kept the changes Kwarteng introduced in place for the 2023/24 tax year, with the main thresholds to remain frozen until April 2028. However, there are some changes in 2023/24 for those who are self-employed.
It can be hard to figure out from the headlines exactly how this will affect you personally.
That’s why we’ve put together a guide on what the new National Insurance rates are; how much money you may save out of your wage packet; and what you can do to help manage any changes to your personal finances.
» MORE: How National Insurance works
What are the new National Insurance rates?
The amount you pay in National Insurance is determined by whether you are employed or self-employed, and how much you earn.
The National Insurance rate for employees is 12% on income of £12,570 to £50,270 a year (£1,048 to £4,189 a month). The rate for any income over £50,270 a year (over £4,189 a month) is 2%.
You do not pay National Insurance on your first £12,570.
If you are self-employed, your National Insurance contributions are calculated using your annual profits.
The National Insurance rate is 9% for profits between £12,570 and £50,270, and 2% for any profits over £50,270.
This is on top of the £3.45 a week you pay if your self-employed profits are £12,570 or more.
For employers, the National Insurance contributions rate paid per employee is 13.8% for income above the ‘secondary threshold.’ That’s a salary of £9,100 to £50,270 a year (£758 to £4,189 a month).
Why did the National Insurance contributions rate change?
The NIC rates were cut as part of the Growth Plan 2022 – the ‘mini-budget’ that eventually brought an end to Liz Truss’s brief tenure as Prime Minister.
Kwarteng claimed that the reversal of the rate increase would save 920,000 businesses close to £10,000 on average next year in National Insurance contributions.
How much National Insurance will I pay a year?
How much National Insurance you pay is tied to how much you earn.
The table below provides you with an estimate of your annual National Insurance contributions at different wage brackets.
|Annual income||Estimated annual NIC for 2023/24|
Managing changes in your personal finances
There are a number of positive steps you can take to try to ensure that any changes to your National Insurance contributions are factored into your budget. These include:
Work out your after-tax, after-essentials income. This includes all your regular weekly, monthly and yearly outgoings. It will give you hard numbers related to where you may be overspending, and how much you could potentially save.
The 50/30/20 rule. A handy way to budget and divide your take-home pay is:
- 50% on essentials, such as rent, mortgage, bills and food
- 30% on wants and non-essential spending
- 20% on paying off debt and/or into savings
Spending priorities. Although this may not be applicable to everyone, a good rule of thumb when it comes to prioritising your spending is to:
1) Clear your ‘toxic debt’, such as payday loans or high interest credit cards.
2) Start an emergency fund that can cover unexpected expenses.
3) Contribute to your workplace pension scheme.
4) Continue to add to your emergency fund.
5) Pay off your remaining debts.
» MORE: Budgeting 101: how to make your money go further
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