When most of us get paid in 9 days time, we’ll see more go into our bank accounts than normal. If you earn £50,270 or more, you’ll see an extra £63. If you earn less than this, you can see how much extra you’ll take home using the BBC calculator (link in comments).
This is due to Jeremy Hunt’s National Insurance Contribution (“NIC”) cut from 12% to 10% for employees. Without getting political, this is a major U-turn given that Sunak increased NIC to 13.25% in April 2022, which was reversed back to 12% by Kwateng in November of that same year. It’s been a busy couple of years for payroll software providers.
I’ve said this before, but NIC is effectively a tax on ‘active’ work. If you are sitting with a big rental portfolio, investment income, or living off a fat pension you don’t pay NIC. If you undertake a trade or you are an employee you do. Arguably, it should be the other way round, with the tax system incentivising people do ‘active’ work. There is a strong argument to merge NIC and income tax.
NIC is widely seen as a gentler and fairer tax, in that you pay money in and ultimately receive benefits out. In research by King’s College London in 2023 it was found the most common misconception was that “each person’s National Insurance contributions are kept in a personal pot to be accessed when they reach state pension age”. This is not the case at all. The link between paying NIC and receiving benefits is now vanishingly weak.
Indeed, if you have a limited company and pay yourself a salary of £12,570 and take the rest in dividends you pay no NIC at all, yet are still awarded a ‘qualifying year’. The same goes for someone on Jobseeker’s Allowance. Both give an identical state pension entitlement as someone who has paid £millions in NIC over their lifetime.
An individual needs 35 qualifying years by state pension age to receive full state pension entitlement. You can check if you are on track to do this (link in the comments). If you are missing years, you can make Class 3 voluntary contributions to fill gaps in your record.
