National Insurance: How much do I have to pay and how much will the cut save me?

The government has announced a further 2p cut to National Insurance (NI) in the Budget.

However, previous changes to tax rules mean the amount of tax people pay overall is rising.

Chancellor Jeremy Hunt has announced a 2p cut in National Insurance.

The starter rate will change from 10% to 8% for 27 million workers, from April 2024.

Mr Hunt says this is worth £450 a year to an employee on an average salary of £35,000.

The announcement follows a previous NI cut from 12% to 10%.

The government says that when combined with the previous cut, a worker will save £900.

The chancellor is also cutting NI for two million self-employed workers from April. Their rate will fall from 8% to 6%.

This follows a previous 2p cut for this group which was announced in the 2023 Autumn Statement, but which has not yet come info effect.

The government says when combined with the earlier cut, the average self-employed person will save £650.

NI on income and profits above £50,270 remains at 2%.

NI rates apply across the UK. It is not paid by people over state pension age, even if they are working.

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.

Millions of people will pay hundreds of pounds more in tax because of changes to the tax thresholds. These are the income levels at which people start paying income tax, or have to pay higher rates.

Freezing the thresholds means that more people start paying tax and NI as their wages increase, and more people pay higher rates.

According to the IFS, 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”.

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.

The Basic rate is 20% and is paid on annual earnings between £12,571 and £50,270.

The Higher rate 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.

You lose £1 of your personal allowance for every £2 that your income goes above £100,000.

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.

These apply in England, Wales and Northern Ireland.

For most families, income tax is the single biggest tax they pay.

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.

In 2022 – the most recent year for which international comparisons can be made – that figure was 35.3%.

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.

So in comparison with other countries, the UK is not that highly taxed.

However, overall taxation is high according to historical rates.

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”.