National Insurance calculator: What are NI and income tax and what do I pay?

Chancellor Rachel Reeves will set out the government's tax and spending plans in the autumn Budget on 30 October.

She has warned she will need to take "difficult decisions", but Labour has already pledged not to raise the rates of income tax, National Insurance (NI) or VAT.

NI has already been cut twice in 2024, but previous changes to the way tax is calculated mean the amount many people pay overall has risen.

• What might be in the Budget?
• How the government raises and spends £1 trillion a year

The starting rate for National Insurance for 27 million workers fell from 12% to 10% on 6 January 2024, and again to 8% on 6 April.

The previous Conservative government said that the two cuts were worth about £900 a year for a worker earning £35,000.

For the self-employed, Class 4 NI contributions on all earnings between £12,570 and £50,270 have fallen from 9% to 6%, which the previous government said was worth £350 to a self-employed person earning £28,200.

Self-employed workers also no longer have to pay a separate category of NI called Class 2 contributions.

The NI rate on income and profits above £50,270 remains at 2% for all workers.

• National Insurance rates

The government uses National Insurance contributions (NICs) to pay for benefits and help fund the NHS.

NI rates apply across the UK. You start paying NI when you turn 16 and earn more than £242 a week, or have profits of more than £12,570 a year.

It is not paid by people over the state pension age, even if they are working.

Eligibility for some benefits, including the state pension, depends on the NICs you make across your working life.

The government records how many years of contributions you have made. Paying a lower rate of NI does not mean you contribute less.

If you do not work, for example because you are a carer or claim benefits, you might be able to receive NI credits instead, which mean you will still qualify for the relevant benefits.

You can also make voluntary contributions to plug gaps in your record.

• How does National Insurance work?
• Check your National Insurance record

Despite the NI cuts in January and April, millions will still pay more tax overall because of changes to the tax thresholds.

These are the income levels at which people start paying NI or income tax, or have to pay higher rates.

These used to rise every year in line with inflation.

However, the NI threshold and tax-free personal allowance - the amount you can earn every year before you have to pay income tax - have been frozen at £12,570 until 2028. Higher-rate tax will continue to kick in for earnings above £50,270.

Freezing the thresholds means that more people start paying tax and NI as their wages increase, and more people pay higher rates.

It will create 3.2 million extra taxpayers by 2028, and 2.6 million more people will pay higher rates, according to the Office for Budget Responsibility (OBR), which independently assesses the government's economic plans.

According to the Institute for Fiscal Studies (IFS) think thank, the freeze cancels out the benefits of the NI cuts for some workers.

In the 2024-25 tax year, it says an average earner will have a tax cut of about £340 - from the combined tax changes - and people earning between £26,000 and £60,000 will be better off.

But by 2027, the average earner would be only £140 better off - and only people earning between £32,000 and £55,000 a year would still benefit.

Income tax is paid on earnings from employment and profits from self-employment during the tax year, which runs from 6 April to 5 April the following year.

Income tax is also paid on some benefits and pensions, income from renting out property, and returns from savings and investments above certain limits.

The basic rate is 20% and is paid on annual earnings between £12,571 and £50,270.

The higher rate is 40%, and is paid on earnings between £50,271 and £125,140.

Once you earn more than £100,000, you also start losing your tax-free personal allowance.

You lose £1 of your personal allowance for every £2 that your income goes above £100,000.

Anyone earning more than £125,140 a year no longer has any tax-free personal allowance.

The additional rate of income tax is 45%, and is paid on all earnings above £125,140 a year.

These rates apply in England, Wales and Northern Ireland.

Some income tax rates are different in Scotland, where a new 45% band took effect in April. The top rate also rose from 47% to 48%.

For most families, income tax is the single biggest tax they pay.

But for less well-off households, a greater share of family income goes on taxes on spending, known as indirect taxes.

For the poorest fifth of households, VAT is the biggest single tax paid.

You can look at the amount of tax raised as a proportion of the size of the economy, or GDP.

In 2022 - the most recent year for which international comparisons can be made - that figure was 35.3%.

That puts the UK right in the middle of the G7 group of big economies.

France, Italy and Germany tax more; Canada, Japan and the US tax less.

However, overall taxation in the UK is high compared with historical rates.

In its assessment of the 2024 Budget, the OBR said the government would collect 37.1p of every pound generated in the economy in 2028-29.

That would be the highest level in 80 years.