What is National Insurance and what’s the current threshold?
MILLIONS of workers have to pay National Insurance (NI) to cover the cost of state benefits.
You usually start paying the tax when you turn 16 and earn over a certain amount.
But if you don't pay the tax it can see you miss out financially later down the line.
Here's everything you need to know.
What is National Insurance?
National Insurance is a tax on your earnings, and goes towards state benefits including the state pension, statutory sick pay, maternity leave and unemployment benefits.
UK nationals should receive an NI number and card automatically before turning 16 although sometimes you have to apply for one.
This lets the Government track your earnings and apply the right amount of tax.
Who currently pays it?
You pay National Insurance if you’re 16 or over and either:
- an employee earning above £242 a week
- self-employed and making a profit of £6,725 or more a year
NI is deducted from your wages each month.
If you're employed, you can see your contributions by looking at your pay slip either in physical form or online.
You don't need to pay NI after reaching state pension age - currently 66.
There are different types of National Insurance - known as "classes".
The type you pay depends on your employment status and how much you earn, and whether you have any gaps in your NI record.
Why do I need to pay it?
Paying National Insurance entitles you to some state benefits, though these vary according to your employment status.
If you haven't met the minimum amount of contributions, you may not qualify for some benefits.
For instance, you need at least 10 years' worth of contributions to get any state pension at all, and 35 years to get the full amount.
You can check how much National Insurance you've paid using the Government Gateway portal. You will need a login and password to do this.
If you do not have a login to the Government Gateway portal you can set one up, but will need your National Insurance number to do so.
If you are employed, your contributions will automatically be deducted from your take-home pay, so opting out is not possible anyway.
However, the self-employed have to pay NI through their Self-Assessment tax return.
What are the thresholds and how much do I pay?
The threshold for National Insurance payments is currently £12,570 a year for employed workers and £6,725 for self-employed people.
As it stands, they are frozen until 2028 after Chancellor Jeremy Hunt extended a freeze initially introduced in the March 2021 budget.
The freeze was meant to come to an end in 2026, but extending it will drag millions more into paying a higher income tax rate - a term known as "fiscal drag"
That is because inflation and rising wages will mean more workers will go over the thresholds for paying higher tax.
Thresholds would usually be tweaked to take both of those things into account.
Most people, 27million workers, currently pay 10% NICs on anything earned between £242 and £967 a week after the Government slashed rates from 12% in January.
What is the Budget?
THE Budget is big news and where you'll often hear announcements about taxes. But what exactly is it?
The Budget is when the Government outlines its plans for the economy including taxation and spending.
The Chancellor of the Exchequer delivers a speech in the House of Commons and announces plans for things like tax hikes, cuts, and changes to Universal Credit and the minimum wage.
At the same time, the Office for Budget Responsibility (OBR) publishes an independent analysis of the UK economy.
Usually, the Budget is a once-a-year event and usually takes place in the Autumn, with a smaller update known as the Spring Statement.
But there have been exceptions in recent years when there have been more updates, or the announcements have taken place at different times, for example during the pandemic or when there is a General Election.
On the day of the Budget, usually a Wednesday, the Chancellor is photographed outside No 11 Downing Street with the red box.
He then heads to the House of Commons to deliver his speech, at around 12.30 following Prime Minister's Questions (PMQs).
Changes announced in the Budget are sometimes implemented the same day, while others may not have a set date.
For example, a change to tobacco duty usually happens on the same day, pushing up the price of cigarettes.
Some tax changes are set to come in at the start of a new tax year, which is April 6.
Other changes may need to pass through Parliament before coming into law.
The exact amount that you save depends on how much you earn.
However, someone on an average salary of £35,000 is currently saving £450 a year after rates were slashed to 10%.