Some people’s pay stubs may look better in July than they did last month, as the threshold at which National Insurance (NI) kicks in will be raised starting Wednesday.
Here’s a look at everything you need to know.
NI’s initial thresholds will rise from £9,880 to £12,570 from July 6, meaning many people will see more money in their pay packages from this month.
I’ll be better?
That depends on how much you earn and if it was enough to reach the previous threshold. Nearly 30 million workers will benefit, with a typical employee saving more than £330 in the year from July, according to the government.
However, the cut follows a 1.25 percentage point increase to NI in April, to help pay for health and social care.
The government says that seven out of 10 workers who pay national insurance contributions (NICs) will pay less, even after accounting for the health and welfare tax.
But with the cost of everyday purchases such as groceries and fuel rising sharply, some households may not feel better in practice, even with more money in their pay packet.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “Lower earners will pay less and higher earners will pay more than they did before April.”
According to Hargreaves Lansdown, someone earning £20,000 would have had a monthly NI bill of around £104 before April, which then increased to £112 and will drop to around £82 after the July changes.
Someone with £30,000 would have paid around £204 a month before April, then rose to £222, and will now see this drop to around £192.
On a salary of £40,000, they would have paid around £304 a month before April and seen it rise to £333. Their pay will now drop to around £303.
Someone with £50,000 will pay around £413 per month from July, up from around £404 before April, and someone earning £60,000 will pay around £443 from July, up from £423 before April, according to Hargreaves Lansdown.
What else has been happening with people’s tax payments?
Recent figures have shown that more people are being pulled into higher tax brackets as their wages rise over time. According to figures from HM Revenue and Customs, around 6.1 million taxpayers are expected to pay income tax rates at the higher rate of 40 per cent or the additional rate of 45 per cent in 2022-23.
In 2019-20, the combined total number of taxpayers with higher rates and additional rates was close to 4.3 million.
In addition to being pulled into higher tax brackets, many people’s pay increases are well below inflation, which is expected to top 10 percent in the coming months. This means that the “purchasing power” of their wages is being eroded in real terms.
The government has also said earlier that taxpayers will earn £175 on average thanks to a cut in the base rate of income tax in 2024.
How else could you save on taxes?
Hargreaves Lansdown suggests considering Isas, including the Isa for life if you’re saving for your first home. Pension payments also attract tax breaks, with the first 25 percent taken of the pension usually tax-free.
Some people will also qualify for the marriage allowance, says Hargreaves Lansdown. Subject to certain conditions, the person with the lower income can request the transfer of one-tenth of his personal allowance to the person with the higher income, so that he pays taxes on a smaller part of his income.
Becky O’Connor, head of pensions and savings at interactive investor, also suggested that people could consider any salary sacrifice agreement offered by their employer.
She said: “Salary sacrifice involves exchanging part of your salary for other benefits, such as bicycles, electric car rentals or your pension.
“It lowers your quoted salary for income tax and national insurance, so if you use it, it means the amount you pay should go down.”
What other cost of living support is on the way?
Widespread and targeted support for specific groups who may be particularly struggling will build as 2022 progresses, with a harsh winter ahead.
More than 8 million households will begin to see cost of living payments reach their bank accounts on July 14, when a first installment of £326 will begin to be paid to low-income households as benefits.
The second part of the one-time payment of £650 will follow this autumn.
Retired households will receive £300 to help them cover winter costs, while those on disability benefits will receive an additional £150.
Households will also typically have £400 saved on energy bills.