Some people’s payslips may look better in July than they did last month, as the threshold at which National Insurance (NI) will start to rise from Wednesday.
Here’s an overview of everything you need to know.
What is happening?
The starting NI thresholds will rise from £9,880 to £12,570 from 6 July, meaning many people will see more money in their paychecks from this month.
Will I be better?
This depends on how much you earn and whether it is enough to reach the previous threshold. Nearly 30 million working people will benefit, with the typical employee saving more than £330 in the year from July, according to the government.
However, the cut follows a 1.25 percentage point rise to NI in April to help pay for health and social care.
The Government says seven out of 10 workers who pay National Insurance Contributions (NIC) will pay less, even after the health and social care charge is taken into account.
But with the cost of everyday purchases such as food and fuel rising sharply, some households may not be better off in practice, even with more money in their paychecks.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “People on lower incomes will pay less and people on higher incomes will pay more than before April.”
According to Hargreaves Lansdown, someone earning £20,000 would have had a monthly NI bill of around £104 before April, which has since risen to £112 and will drop to around £82 after the changes in July.
Someone on £30,000 would have paid around £204 a month before April, then rising to £222, and will now see that drop to around £192.
On a salary of £40,000 they would pay around £304 a month before April and this will rise to £333. Their payment will now drop to around £303.
Someone on £50,000 will pay around £413 a month from July, up from around £404 before April, and someone earning £60,000 will pay around £443 from July, up from £423 before April, according to Hargreaves Lansdown.
What else happens to people’s tax payments?
Recent figures show that more people are being pushed into higher tax brackets as their wages rise over time. According to HM Revenue and Customs figures, around 6.1 million taxpayers are expected to pay income tax at the higher rate of 40 per cent or the additional rate of 45 per cent in 2022-23.
In 2019-20, the total number of higher rate and additional rate taxpayers combined was close to 4.3 million.
As well as being pushed into higher tax brackets, many people’s pay rises are well below inflation, which is expected to exceed 10 per cent in the coming months. This means that the “spending power” of their wages is eroding in real terms.
The government also previously said taxpayers would gain an average of £175 thanks to a cut in the basic rate of income tax in 2024.
How else can I save on taxes?
Hargreaves Lansdown suggests considering Isas, including a lifetime Isa, if you’re saving for your first home. Payments into pensions also attract tax relief and the first 25 per cent taken out of the pension is usually tax-free.
Some people will also be eligible for marriage allowance, says Hargreaves Lansdowne. Subject to certain conditions, the lower earner can apply to transfer one-tenth of their personal allowance to the higher earner so that they pay tax on less of their income.
Becky O’Connor, head of pensions and savings at interactive investor, also suggested people should consider any salary sacrifice arrangements offered by their employer.
She said: “Salary sacrifice involves exchanging part of your salary for other benefits, such as bikes, electric car leases or your pension.
“It reduces your quoted salary for income tax and national insurance purposes, so if you use it, it means the amount you pay has to go down.”
What other cost of living support is on the way?
Support, both broad-based and targeted at specific groups who may be particularly hard-pressed, will increase as 2022 progresses, with a severe winter expected.
More than 8 million households will start to see living wage payments hit their bank accounts on July 14, when the first installment of £326 starts to be paid to low-income households in benefits.
The second part of the one-off payment of £650 will follow this autumn.
Pensioner households will receive £300 to help cover winter costs, while people on disability benefits will receive an extra £150.
Households as a whole will also have a £400 reduction in their energy bills.