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2023 Autumn Statement – changes to National Insurance

by Admin

Chancellor Jeremy Hunt has given his Autumn Statement today, including a number of changes to National Insurance contributions for both employees and for the self-employed.

The standard rate of NI for employees (Class 1) will be reduced with effect from 6th January 2024 (i.e., before the start of the next tax year on 6th April), from its current 12% to a lower 10%. This rate of NI is paid by employees earning more than £12,570. The rate you pay on earnings over £50,270 will remain at 2%.  This change could save employees up to £754 per year.

The self-employed will also benefit from 6th April, with their (Class 4) NI rate being reduced from 9% to 8%, and Class 2 NI (£3.45 per week) being abolished.

If you’d like to see how much of a difference the NI change will make to your payslip from January, The Salary Calculator has been updated with the new NI rates, which are displayed in the results table in an extra “From January 2024” line. I hope that you find it helpful!

Tags: 2023, 2024, National Insurance, national insurance

The Autumn Budget: What it means for you and your finances

by Madaline Dunn

In his first speech as Prime Minister, Rishi Sunak said the country was “facing a profound economic crisis.” Following this, it was announced last week that the country had officially entered a recession. This means there has been a prolonged downturn in economic activity and a fall in GDP for two successive quarters.

In the wake of this news, the new Chancellor, Jeremy Hunt, warned that “decisions of eye-watering difficulty” are ahead and that the government will be asking “everyone for sacrifices.” He subsequently announced the long-awaited Autumn Budget, detailing a wide range of tax rises and spending cuts. After this announcement, the pound fell 0.9%.

At The Salary Calculator, we know that this is an incredibly challenging time for millions of people, and it’s likely that you’ll have a lot of questions about what the budget means for personal finances. So, we’ll walk you through the changes likely to impact you. This includes:

• What changes are upcoming
• When these changes will take effect
• Cost of living payments
• The impact the changes will have on take-home pay
• What’s happening with benefits
• Helpful resources to cope with the cost of living crisis

What changes are coming up?

In the Chancellor’s budget statement, he made a number of announcements in regard to National Insurance (NI), Income Tax, Pensions, and more. This included:

• That income tax personal allowance will be frozen at £12,570 until April 2028, in addition to a freeze on the Basic Rate.
• The threshold for paying the 45p rate has also been lowered to £125,140 from the existing £150,000, bringing an additional 246,000 people into the bracket. Those within the bracket will now pay an extra £580 each a year, equating to an additional £1.3 billion a year for the Treasury.
• The main NI thresholds will remain frozen until April 2028.
• The pension triple lock (frozen during the pandemic) will come in, meaning that the State Pension will increase in line with whichever of the following three is highest:

-Inflation

-The average wage increase

-2.5%

• The National Living Wage (NLW) will be increased by 9.7% from £9.50 an hour for over-23s to £10.42: an annual pay increase of over £1,600 for a full-time worker.
• Young workers and apprentices on the National Minimum Wage (NMW) rates will also see their wages slightly boosted. Those aged 21-22 will see an increase of 10.9% to £10.18 an hour, while for those aged 18-20, their wages will increase by 9.7% to £7.49 an hour. Those aged 16-17 will see their wages increase by 9.7% to £5.28 per hour, and the same for Apprentices: an increase of 9.7% to £5.28 an hour.

Speaking about the changes brought in under the budget, Hunt said the government is taking “difficult decisions on tax-free allowances.” Adding: “I am maintaining at current levels the income tax personal allowance, higher rate threshold, main national insurance thresholds and the inheritance tax thresholds for a further two years taking us to April 2028. Even after that, we will still have the most generous set of tax-free allowances of any G7 country.”

When will the changes take effect?

Although the Chancellor announced the budget on the 17th of November, the changes will take effect from April 2023, affecting around 19 million families.

Will cost of living payments continue?

The government has announced additional cost of living payments will be made throughout 2023-24. This means that:

• If your household receives means-tested benefits, you will receive an additional £900 payment.
• You will receive an additional £300 payment if you live in a pensioner household.
• If you are an individual on disability benefits, you will receive an additional £150 payment.

What impact will the changes have on take-home pay?

While there will be a continuation of cost of living payments, freezes on NI and Income Tax payments for those on lower incomes, and an increase in the NLW, according to statistics experts, the announcements from the budget statement mean that you’ll likely be worse off.

Discussing what this means in real terms, Robert Cuffe, a statistics expert at the BBC, explained that if you’re one of the lucky ones to receive a pay rise that “just about keeps pace with inflation” in April 2023, while your pay cheque will be bigger because prices have risen as much as your salary, you won’t be better off. Cuffe outlined that if you’re a basic rate taxpayer, the government will take around £300 out of your increased wages, and if you’re a higher rate taxpayer, this jumps to £670.

To better understand how the budget changes will directly affect you and your finances, head over to The Salary Calculator’s Take Home Tax Calculator.

What’s happening with benefits?

In the budget, it was outlined that benefit rates will increase in line with inflation, equating to an increase of 10.1% this year. So, for families, the benefit cap will increase from £20,000 to £22,020 (and in Greater London, £23,000 to £25,323). Meanwhile, for single adults, the benefit cap will rise from £13,400 to £14,753 (£15,410 to £16,967 in Greater London).

With regard to those on disability benefits, there is a new Disability Cost of Living Payment. So, according to the government, more than six million people across the UK on non-means-tested disability benefits will receive a £150 Disability Cost of Living Payment. Those eligible for this cost of living payment include those currently receiving:

• Disability Living Allowance
• Personal Independence Payment
• Attendance Allowance
• Scottish Disability Benefits
• Armed Forces Independence Payment
• Constant Attendance Allowance
• War Pension Mobility Supplement

Resources to help during the cost of living crisis

It’s understandable to have concerns about the cost of living crisis and personal finances, but there are some resources available to help you navigate these difficult times. We’ve shared some of these resources below:

Local government support: https://www.local.gov.uk/our-support/safer-and-more-sustainable-communities/cost-living-hub

Unbiased: https://www.unbiased.co.uk/pages/hub/cost-of-living-hub

Citizen Advice: adviceguide.org.uk

Local Energy Advice Partnership: https://applyforleap.org.uk/

Trussell Trust for UK food banks: https://www.trusselltrust.org/get-help/find-a-foodbank

The Community Fridge Network (not means-tested): https://www.hubbub.org.uk/the-community-fridge

Stonewall Housing: stonewallhousing.org

Street Link: https://www.streetlink.org.uk/

My Supermarket Compare: https://mysupermarketcompare.co.uk/

Save the Student: https://www.savethestudent.org/save-money/money-saving-resources.html

Tags: budget, Economy, income tax, national insurance, national minimum wage, Pensions, triple lock

The mini-budget and its impact on personal finances

by Madaline Dunn

If the headlines have got you feeling concerned, you’re not alone. It’s been an incredibly difficult few years financially, and the knocks appear to keep coming. The Conservative government’s recent mini-budget has brought in a raft of changes and sent shock waves across markets. However, the implications for personal finances have stretched much further than simply tax cuts, with the pound crashing to a record low, with, what has been called “open revolt” in markets.

At The Salary Calculator, we understand that there is power in knowledge, and the best way to equip yourself for the changes ahead is to be informed. So, below, we’ll explore:

• The changes introduced by the mini-budget,
• How the budget will impact personal finances,
• What the mini-budget means for the value of the pound and living expenses,
• The government U-turn.

The mini-budget

During his emergency Budget speech on Friday, 23 September, the new Chancellor Kwasi Kwarteng introduced the mini-budget which brought in sweeping changes to income tax, National Insurance (NI), Universal Credit, Stamp Duty, and bankers bonuses.

For income tax, from April 2023, the basic rate of income tax will be cut by 1% (from 20% to 19%). Under former Chancellor Rishi Sunak, this was meant to come in the following year. In addition to this, Kwarteng announced that the additional rate of income tax, currently applicable to earnings above $150,000, would also been scrapped, meaning that the highest earners would pay the 40% tax rate on their earnings, rather than 45% (more on that later).

According to the Treasury, these changes will result in 31 million people being better off by an average of £170 per year. However, an analysis from the thinktank The Resolution Foundation at the time of the announcement outlined that “only the very richest households in Britain” would see their incomes grow as a result of the tax changes, with the wealthiest 5% to see their incomes grow by 2% next year (2023/24).

With regards to NI, from 6 November, employers and employees will pay 1.25 percentage points less in NI. This will result in employees paying NI at 12% on earnings between £12,570 and £50,270 and 2% on anything above. Employer rates, on the other hand, will revert to 13.80%.

For those on Universal Credit, in a move that Kwarteng said would “get Britain working again,” rules will get tighter. Set to come into effect in January 2023, the new rules will impact 120,000 claimants, who will be asked to “take active steps” to increase their working hours or find better-paid jobs or have their benefits reduced.

As interest rates on mortgages are projected to reach 6%, the Chancellor has also scrapped Stamp Duty. As a result, you won’t pay any stamp duty on the first £250,000 of a property. The Treasury has outlined that 200,000 more people every year will be able to buy a home without paying any stamp duty; first-time buyers will now pay no stamp duty up to £425,000 (up from £300,000). Some have voiced concerns that this will lead to further hikes in house prices, much like when Sunak announced the Stamp Duty holiday.

In a surprising move the Chancellor has also made strides toward deregulation of London’s financial industry to “boost growth.” This has come, in part, in the form of Kwarteng scrapping the banker bonus cap. Explaining this decision, the Chancellor said: “We need global banks to create jobs here, invest here and pay taxes here in London, not in Paris, not in Frankfurt and not in New York.” Unite, on the other hand, called the move an “insult to workers,” while Positive Money, a non-profit research and campaigning organisation, called it “shameful.”

The value of the pound and its effect on day-to-day living expenses

The currency markets have reacted to Kwarteng’s mini-budget with volatility, and subsequently, the pound has plummeted. At a record low, on Monday, 26 September, the pound was worth $1.0327 against the dollar. The pound also dropped sharply when the Bank of England was forced to intervene over what was being called a “material risk” to the UK economy.

But what does this mean for consumers? Well, unfortunately, it’s not good. With the pound so weak against competing currencies, the price of imports will be much higher. This is especially bad news considering that when it comes to food self-sufficiency, overall, the UK imports more than 50% of its food, with supermarkets specifically relying on imports for 40% of their food stock, meaning that the price of groceries is set to increase yet again. Moreover, regarding travelling via car, according to the AA, a weak pound means that filling up a family car could cost an extra £7.50, and that’s not taking into consideration the fact the fuel prices are already at an all-time high.

The struggling pound will also have a staggering impact on mortgages. On Monday, the financial markets forecast that the base rate could nearly treble to 6% next year. Likewise, those on variable rates (2.2 million) will immediately feel the effect of raised interest rates.

The 45p rate U-turn

In the wake of serious backlash over plans to scrap the 45p rate for those earning over £150,000 a year during a time of rising living costs, the government has announced a U-turn. This U-turn also comes following the circulation of reports that new Chancellor Kwasi Kwarteng met with hedge fund managers for a champagne reception just after his mini-Budget.

In terms of what the U-turn means for the pound, those from the financial sector have warned that while sterling has performed better, a lot of questions still remain, considering that the 45 pence tax rate was only a small part of the unfunded tax cuts announced. As Jane Foley, head of FX Strategy, Rabobank, London, said: “UK assets, the pound and gilts are not out of the woods yet, and the British government has a lot to do to get back credibility.”

Moreover, while the U-turn seemed to bolster the pound, with sterling jumping as much as 1pc in early trading amid reports, it fell back to around $1.12 following the Chancellor stating he wouldn’t resign.

Tags: Consumer goods, cost of living, income tax, mini-budget, national insurance

The National Insurance threshold increase and what it means for you

by Madaline Dunn

In the midst of numerous cost of living hikes, it’ll likely be comforting to learn that as of 6th July, millions of people will be slightly better off as a result of the National Insurance (NI) threshold increase.

At The Salary Calculator, we’ll walk you through:

• How much the threshold has been increased by
• Why the threshold increase is happening
• How this will affect people
• How to check what difference it will make to your take home

How much has the threshold increased by?

From 6th July 2022, the threshold for National Insurance contributions increased from £9,880 to £12,570. This means that people will now have to earn additional £2,690 before paying towards National Insurance.

Why has the threshold been increased

Back in April, the government announced that despite the cost of living crisis continuing to worsen, NI would be increasing by an additional 1.25% in an effort to aid NHS recovery, and fund the Government’s share of social care. However, the government has now raised the NI threshold as part of what it’s called the Chancellor’s “wider vision for a lower tax economy.”

How will this affect people?

This threshold increase means that some people will see a boost in their July pay packets. Experts have outlined that those earning around £31,500, or less will notice the most significant difference. Moreover, the UK government has said that almost 30 million working people will benefit overall, with the average worker saving over £330 in the year from July.

According to a previous statement by the government, 70% of NI paying workers will pay less, and 2.2 million people will no longer be required to pay NICs as a result. According to figures by HW Fisher, those earning £14,000, will save around £342.37 a year, meanwhile those on £20,000 will see savings of £267.36.

A more in depth comparison of how the situation has fluctuated in recent months shows that someone earning £20,000 would have been faced with a monthly NI payment of around £104 before April. This then rose to £112 following the hike and now, as a result of the July changes, will drop to approximately £82.

That said, while any money saved is arguably a win, it’s important to put the savings into a broader context, Alice Haine, personal finance analyst at investment platform Bestinvest, for example, has noted that the £330 workers will save, “won’t stretch far when you realise that only equates to £27.50 a month”.

While Haine outlined that for some, £27.50 could be the difference between “having dinner every night and sometimes going without,” for many it will “barely make a dent in their budgets as they struggle to pay the household bills amid rampant inflation as soaring food, fuel and energy prices become the norm.”

Stevie Heafford, tax partner at accountancy firm HW Fisher, echoed similar sentiments and when asked if it will help to solve the current crisis, he said: “The very short answer is, no. Those with lower income will save more in pure monetary terms, but they will be more exposed to the general increases in cost of living as they are less likely to have any sort of ‘buffer’.”

How can you check what difference it will make?

You can review how much of a difference this will make to your take home pay by heading over to The Salary Calculator, where you will be able to figure out exactly how much you’ll save.

Tags: cost of living, Economy, national insurance, NI threshold, take-home pay

The National Insurance hike: What, How and Why

by Madaline Dunn

In another financial blow to many, the government has announced that the National Insurance (NI) hike will, in fact, go ahead. This comes at the same time as energy bills skyrocket, food costs rise, and interest increases, leaving many concerned about what it will mean for them and the general cost of living. 

At The Salary Calculator, we’ll help you get to grips with the upcoming changes and explain:

• What the National Insurance hike is all about 
• How much more money you can expect to pay
• Who will be affected most by the hike

The National Insurance hike 

On 28 January, Chris Philip, Minister for Technology and the Digital Economy, announced that the planned National Insurance increase would indeed go ahead in April, much to the dismay of millions in the UK. 

This move goes against the Conservative Party’s 2019 election manifesto, and according to the government, is expected to raise £36 billion over a three year period. The hike is reportedly in response to Covid and the pressure it placed on the NHS. A portion will also be dedicated to reforming the social care system.

Defending the hike, in The Sunday Times, Prime Minister Boris Johnson and Chancellor Rishi Sunak called the policy “progressive,” adding: “We must clear the Covid backlogs, with our plan for health and social care – and now is the time to stick to that plan. We must go ahead with the health and care levy. It is the right plan.”

How much money you can expect to pay

The changes to National Insurance will come into effect on 6 April 2022 and according to reports for many across the country this hike is the equivalent of a 10% increase in deductions from pay packets. The rate of dividend tax will also increase by 1.25 percentage points. 

Those earning £9,880 a year, or £823 a month, won’t have to pay National Insurance, but those earning £12,875  or more will see their NIC increase. For example, basic-rate taxpayers will see their NIC jump from 12% to 13.25%. So, those earning £24,100, will say goodbye to an additional £180 a year which translates to £3.46 a week, or £13.84 a month. Meanwhile, those on £50,000 will pay £505 more a year. 

Those who are higher-rate taxpayers and on a salary of £67,100 will pay £715. While those on £100,000, will pay £1,130 more.

Who will be affected the most by the hike?

Although the tax will be progressive, with those who earn more paying more, those on £100,000 a year will pay just 7% of their overall salary in NIC, which is the same proportion as those on just £20,000 a year. Moreover, the NI hike means that someone on £50,000 a year will pay £5,086, around 10% of their gross salary.

With so many families already struggling to make ends meet, many argue that the NI increase should be postponed. Commenting on this, Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “Now is not the time for a tax hike: the National Insurance rise in April needs to be shelved.”

This is something echoed by Laura Suter, head of personal finance at investment platform AJ Bell, who said poorer families will be hit the hardest: “For a much bigger proportion of low-income families, monthly costs go on things like energy bills and food bills, who tend not to have the same ability to cut back as wealthier families.”

Tags: Economy, living costs, national insurance, salary