ALL working people in the UK must pay tax known as National Insurance once they reach a certain threshold.
But the government has planned for a tax cut meaning millions will save £330 a year.
A 1.25% point increase to National Insurance will be scrapped from November 6, announced in the Chancellor's mini-budget today.
Chancellor Kwasi Kwarteng said: "The increase in Employer National Insurance Contributions and dividends tax will be cancelled.
"Reversing the Levy delivers a tax cut for 28 million people, worth, on average, £330 every year."
It comes as the Chancellor announced:
- A beer price rise has been cancelled
- National Insurance rise scrapped saving up to £330 a year
- Income tax cut from next April saving average £124 a year
- Stamp duty cut for home movers and first-time buyers
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The National Insurance hike was first introduced in April this year.
Rates rose from 12% on earnings between £184 to £967 a week to 13.25%.
While charges on earnings over this amount went up from 2% to 3.25%.
But this hike will be scrapped – and the move will save workers an average of £135 a year in 2022, rising to £330 in 2023-24.
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How much National Insurance do I pay?
At the moment, most people pay 13.25% on anything they earn between £242 and £967 per week. You have to pay 3.25% on anything you earn over £967 a week.
From November 6, most people will pay 12% on anything earnings between £242 and £967 a week.
The Chancellor's new move will save workers an average of £135 a year in 2022, rising to £330 in 2023-24.
But, the exact amount that you will save will depend on how much you earn.
Personal finance specialists at Hargreaves Lansdown have worked out how much people will save based off their earning.
The tax cut would see an individual on £15,000 save £24 a year.
Those on £20,000 will save £93 a year and those on £25,000, £124 a year.
Individuals earning £30,000 a year will save £218 a year and those on £40,000 will save £343 a year.
Lower earners, on less than £12,570 a year, won't benefit from the change.
You don't pay any tax under this amount which is your tax-free personal allowance.
The tax rise was due to be branded under a Health and Social Care Levy from April next year, but this has also been scrapped.
The Chancellor said: “Taxing our way to prosperity has never worked. To raise living standards for all, we need to be unapologetic about growing our economy.
“Cutting tax is crucial to this – and whether businesses reinvest freed-up cash into new machinery, lower prices on shop floors or increased staff wages, the reversal of the Levy will help them grow, whilst also allowing the British public to keep more of what they earn.”
Sarah Coles, personal finance expert at Hargreaves Lansdown said: "At this stage, every extra penny in our pockets is welcome, so the National Insurance cut will come as a welcome boost for the finances of millions of taxpayers."
My Pension Expert Andrew Megson said the U-turn on the National Insurance hike will "boost the amount of pay people in work take home each month".
It comes the Chancellor announced a raft of measures to help hard-up households struggling with the cost of living crisis.
He cut Stamp Duty so more people can buy a house and in turn help fire up the economy.
Promising a “new era” for Britain, Mr Kwarteng announced 38 low-tax zones to get business booming.
What salary do you start paying National Insurance?
If you are employed, you start paying National Insurance when you are 16 or older and earning more than £184 a week.
The self-employed start paying when they make profits of at least £6,475 a year.
Those earning less than these amounts do not have to pay any National Insurance.
If you earn less than £184 a week, but more than £120, your account will be credited as paying National Insurance, and you will still have access to benefits such as a pension.
However, if you earn less than £120 a week you will be exempt from National Insurance contributions.
Can I check how much National Insurance I've paid?
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.
You can check how much you have made in contributions during the current financial year, and check how many National Insurance credits you have received.
However, this portal will not give you an estimate of how much state pension you are entitled to.
You can also request for a paper version over-viewing your contributions if you want.
Can I opt out of National Insurance?
You cannot opt out if you are employed or self-employed, are aged 16 or over and earning above the minimum threshold.
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 manage these payments themselves.
If you become self-employed, you must tell HMRC as soon as possible.
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You will then be required to complete a Self Assessment tax return every year.
This will be used to determine how much tax and National Insurance you should pay.
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