As part of the 2020 Budget, Chancellor Rishi Sunak has announced National Insurance thresholds for 2020-21 tax year will be increased.
Both employed workers, and self-employed workers that pay Class 4 contributions, will be able to earn up to £9,500 in 2020-21 before National Insurance contributions (NICs) kick in.
Mr Sunak said this threshold rise will benefit 31 million workers, saving a 'typical employee' around £104 over the year.
In addition, a new National Insurance 'holiday' will be introduced for businesses that employ veterans, for the first year of their civilian employment.
Here, we explain how the changes could affect your tax bill.
National Insurance rates in 2020-21 will stay the same, but the thresholds have gone up. This means you can earn more before paying a National Insurance contribution (NIC).
This could be good news for lower earners, who can now earn £868 a year more before they'll need to pay 12% National Insurance.
The government says this is the first step in the government's plan to raise the NI threshold to £12,500, so that it is equal to the personal allowance.
The 2% surcharge threshold has remained the same, at £50,000.
The rates you pay are staying the same, as shown in the table below.
|Employed 2019-20||Employed 2020-21|
|How much you earn||Class 1 rate||How much you earn||Class 1 rate|
|Less than £8,632||0%||Less than £9,500||0%|
|More than £50,000||2%||More than £50,000||2%|
We are still waiting for the government to publish this information in full. We will update our story as soon as this information is available.
|Self-employed 2019-20||Self-employed 2020-21|
|How much you earn||Class 2 and Class 4 rates||How much you earn||Class 2 and Class 4 rates|
|Less than £6,365||0%||Less than £6,475||0%|
|£6,365-£8,632||£3 per week (Class 2 only)||£6,475 -£9,500||£3.05|
|£8,632-£50,000||9% + £3 per week||£9,500-£50,000||9% + £3.05|
|More than £50,000||2% + £3 per week||More than £50,000||2% + £3.05|
You can see how the amount you can earn before paying Class 2 and Class 4 contributions has crept up in the graph below:
From 6 April 2020, Class 3 contributions will look like this:
|Unemployed/exempt 2019-20||Unemployed/exempt 2020-21|
|Type of contributions||Class 3 voluntary contributions||Type of contributions||Class 3 voluntary contributions|
|Amount||£15 per week||Amount||£15.30 per week|
As to how the changes might affect how much tax you pay, we've come up with some worked examples.
Someone who is employed and earns £30,000 a year would have had to pay £2,564.16 for Class 1 National Insurance in 2019-20. In 2020-21, they'll have to pay £2,460 - a reduction of £104.16.
For a self-employed worker with profits of £20,000, they'd have had to pay £1,176.52 in 2019-20 through a mix of Class 2 and Class 4 contributions. But in 2020-21 they'll pay £1,103.60.
If you're self-employed and above state pension age you don't need to pay Class 2 contributions. You do need to pay Class 4 contributions, but only for the tax year you reach state pension age, but no longer.
Simply enter your employment status and your annual income/profits into the calculator below to find out how much National Insurance you'll pay in the 2020-21 tax year, starting 6 April 2020.
The calculator assumes self-employed workers will pay Class 2 contributions.
Mr Sunak announced a brand new measure to support the employment of UK veterans, which will be introduced from the 2021-22 tax year.
Any employers who take on a veteran won't have to pay any employers NI contributions for the first year of the veteran's employment, up to the Upper Earnings Limit. This is only for the veteran's first year of civilian employment.
The government has said it will consult on the design of this relief.
The reform of off-payroll working rules (also known as IR35) in private and third sectors was announced in the Autumn Budget 2018, and was set to be introduced in April 2020.
The government recently announced the changes will still come into force this year, but has announced a number of changes to make the transition smoother.
These include measures such as promising a 'light touch' approach for the first year, meaning businesses won't be fined for incorrect returns, but non-compliance after 6 April 2020 will be punishable.
National Insurance is a tax you pay on your earnings.
Every person in the UK is issued with a National Insurance number before they start work - usually when they turn 16. These numbers are set by the Department of Work and Pensions, and they're used by the government to track how much tax you pay during your working life.
You pay different rates depending on if you're employed or self-employed - self-employed workers pay NI on their profits, via a self-assessment tax return.