National Insurance contributions were introduced earlier this 12 months in a bid to tackle NHS costs, nevertheless Chancellor Kwasi Kwarteng confirmed within the mini budget that this descison could be reversed. The reversal will come into effect from November 6.
National Insurance contributions had increased from 12 percent to 13.25 percent in April.
This 1.25 percentage point rise was introduced to pay for health and social care.
The reversal of the hike, which was introduced by ex-Chancellor Rishi Sunak, will mean National Insurance contributions return all the way down to 12 percent.
Mr Kwarteng said: “Taxing our approach to prosperity has never worked. To boost living standards for all, we have to be unapologetic about growing our economy.
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“Cutting tax is crucial to this.
“Whether businesses reinvest freed-up money into recent 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 maintain more of what they earn.”
The Treasury said most employees would receive a cut to their National Insurance contribution directly via their employer’s payroll of their November pay, although some could also be delayed to December or January.
It calculated that just about 28 million people will keep an additional £330 of their money on average next 12 months, while 920,000 businesses are set to save lots of almost £10,000 on average next 12 months due to the change.
In the event that they have an employer, or they’re self-employed but work for an employer, they’ll pay Class 1 National Insurance contributions.
The quantity people pay on National Insurance is then worked out based on their on gross earnings, before tax or pension deductions, above certain thresholds.
People begin to pay National Insurance after they earn above £12,570.
When the reversal comes into play, individuals can pay 12 percent on earnings between £12,570 and £50,270.
They currently pay 3.25 percent on earnings over £50,270 but this may drop to 2 percent.
The Government has confirmed that these thresholds, which were lifted in July, will remain in place.
Latest calculations from Interactive Investor show the reversal of the 1.25 percentage point hike will lead to an annual saving of £218 for somebody earning £30,000, rising to £468 for somebody earning £50,000.
Employees with an annual salary of £20,000 would save £93 under the policy, while someone earning £80,000 could be £843 higher off.