National Insurance threshold rises in ‘much needed good news’ – will you save £104?
Coronavirus is – understandably – at the forefront of most people’s minds. But, with the tax year for 2020 to 2021 beginning today, a whole host of personal finance changes have come into effect.
- Minimum Wage and National Living Wage rates are rising today
This includes a rise to the National Insurance threshold.
For the 2020 to 2021 tax year, the Class 1 National Insurance threshold will be £9,500 per year – up from £8,632.
The change was announced earlier this year, in January, as well as it featuring during the current Chancellor of the Exchequer Rishi Sunak’s 2020 Budget.
Speaking in the House of Commons as he delivered the financial statement last month, Mr Sunak said: “As people earn more, we’ll also cut taxes on their wages.
“I’m increasing, in just four weeks time, the National Insurance threshold from £8,632 to £9,500.
“That’s a tax cut for 31 million people, saving a typical employee over £100.”
Commenting on the announcement at the time, Victoria Kelly, Director of Operations at leading accountancy firm Nixon Williams, said: “The chancellor confirmed plans an increase the threshold for employee’s national insurance contributions to £9,500 from 6th April 2020, with plans to ultimately increase this to £12,500.
“This rise is extremely welcomed by both contractors and PAYE employees.
“The confirmation that this will not affect access to state pensions should also alleviate worries for those fearing the tax break could have financial implications in later life.”
According to the original announcement by HM Treasury back in January, a typical employee will save around £104 in 2020-21.
Meanwhile, self-employed people, who pay a lower rate, will have £78 cut from their bill.
Other changes this month include a rise to National Minimum Wage and National Living Wage rates, which were effective from April 1, 2020.
Additionally, the state pension has today risen by 3.9 percent, under the triple lock mechanism.
Meanwhile, the pension lifetime allowance for 2020/21 has risen in line with September’s inflation figure of 1.7 percent today, to £1,073,100.
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Commenting on the changes, Steven Cameron, Pensions director at Aegon, said: “These are challenging times for everyone and many people will be feeling the financial effects of the coronavirus.
“However, a number of changes have come into effect which will offer some much needed good news to a diverse group of people.
“There are two sets of changes that particularly benefit lower and average income workers.
“The first is that the National Insurance threshold has risen from £8,632 to £9,500 which means those under this threshold will now no longer pay any NI whatsoever. This will save a lower/average earner around £104 a year.
“Coupled with the rise in the National Minimum Wage and the National Living Wage on April 1, this should provide a little extra to help to employees facing financial difficulties at this time.
“An inflation busting rise in the state pension should also offer state pensioners some cheer as they see weekly payments increase by 3.9 percent in line with the triple lock, with the New State Pension rising to £175.20 per week and the Basic State Pension rising to £134.25 per week.
“The pensions Lifetime Allowance dictates how much an individual is allowed to save in a pension without incurring additional tax charges.
“The allowance is rising to £1,073,100 which sounds like a huge sum but many middle and higher earners who have been saving through a defined benefit pension for many years will benefit from this change. This could include many civil servants as well as senior nurses and doctors.”
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