Starting from Saturday, 27 million employees across the United Kingdom will see a cut in their National Insurance (NI) payments, giving them almost £450 a year relief per average salary of £35,000. However, frozen income levels at which tax is paid mean that these workers are also paying more in income tax. On the other side, the self-employed will see their NI contributions reduced from 9% to 6% on all earnings between £12,570 and £50,270. Pensioners will not receive the benefit of this reduction, but the state pension is set to increase by 8.5%.
This change follows many household bills becoming expensive, so the financial impact can differ significantly, depending on individual circumstances. The average earner on £35,000 who has benefited more from the cut in NI, is a winner of these tax changes. Conversely, the very top earners have seen their taxes increase due to new policies. Fiscal drag, together with rising minimum pay rates, means that someone working 35 hours a week on the minimum wage will have to pay tax on almost £8,300 of their earnings, an increase of £1,900 from the previous year.
The impact of the freeze in income tax thresholds and the NI cuts has led the Institute for Fiscal Studies (IFS) to estimate that for every £1 given back to workers by the NI cuts, £1.30 will have been taken away due to the threshold changes between 2021 and 2024, and this figure will rise to £1.90 in 2027. The impacts of income levels are significant, and it is expected that eventually, 1.6 million pensioners will pay taxes by 2027-28. Scotland has different tax bands than the rest of the UK, and while benefits are fully devolved in Northern Ireland, changes will be similar to those for the rest of the UK.
Part-time teacher, Beth Langton-Clarke, who has cut back on spending to make ends meet, welcomed these changes and believes that it will make a big difference in the family’s finances, for example towards an £800 yearly family holiday. However, while some people will benefit from this change, some may lead challenging family and personal circumstances causing financial strain
Read the full article from The BBC here: Read More