National Insurance and Income Tax Explained
What are National Insurance (NI) and income tax?
National Insurance and income tax are contributions that individuals make to the government to fund public services like the NHS and benefits.
How has NI changed?
In 2024, NI contributions were cut twice. For self-employed individuals, the rate on earnings between £12,570 and £50,270 was reduced from 9% to 6%. Additionally, self-employed workers no longer need to pay Class 2 contributions.
How does NI work?
NI contributions are based on your earnings. You start paying NI when you turn 16 and earn more than £242 a week or have profits exceeding £12,570 a year. The contributions you make throughout your working life determine your eligibility for benefits, including the state pension.
Why are millions paying more tax?
Despite the NI cuts, many individuals are paying more tax due to frozen tax thresholds. These thresholds determine the income levels at which people start paying NI or income tax. The freezing of these thresholds means more people are paying tax and NI as their wages increase.
What are the current income tax rates?
Income tax is paid on earnings from employment and self-employment. The basic rate is 20% for annual earnings between £12,571 and £50,270. The higher rate is 40% for earnings between £50,271 and £125,140. An additional rate of 45% applies to earnings above £125,140.
How do UK taxes compare to other countries?
The UK has a higher tax burden compared to some countries like Canada and Japan, but lower than others like France and Germany. Overall, taxation in the UK is at its highest level in 80 years.