Speculation is growing regarding potential changes in November’s Budget from Chancellor Rachel Reeves, particularly concerning Labour’s pledge not to raise income tax, National Insurance (NI), or VAT for working individuals. Reports suggest that there may be adjustments to NI and income tax, including the possibility of extending a freeze on the income thresholds that determine when individuals begin to pay these taxes.
National Insurance serves to fund benefits and support the National Health Service (NHS) in the UK. It is collected from employees, employers, and the self-employed, but individuals over the state pension age are exempt, even if they continue working. Eligibility for certain benefits, like the state pension, hinges on National Insurance contributions made throughout a person’s working life; individuals can also make voluntary contributions to address any gaps.
Employees start paying National Insurance once they turn 16 and their weekly earnings exceed £242, or if self-employed profits surpass £12,570 annually. In 2024, the contribution rate for employees was reduced twice, from 12% to 10%, and then to 8%. The previous Conservative government claimed these reductions would save approximately £900 for a worker earning £35,000 per year. For the self-employed, the NI rate dropped from 9% to 6% on earnings between £12,570 and £50,270.
Employers contribute NI at a rate of 15% on wages exceeding £5,000 since April 2025, up from a previous rate of 13.8% on salaries above £9,100. The employment allowance, which allows employers to reclaim some NI payments, increased from £5,000 to £10,500.
Income tax must be paid on earnings surpassing the tax-free threshold of £12,570. The current rates for income tax begin at 20% for earnings between £12,571 and £50,270, escalating to higher rates for increased earnings. Changes to income tax thresholds, which previously adjusted with inflation, have significant implications for taxpayers, particularly as income levels rise, potentially leading to more individuals paying tax or facing higher rates.
Source: https://www.bbc.com/news/articles/c62q51vl18yo?at_medium=RSS&at_campaign=rss