See whether you win or lose from tax and national insurance tweaks
National insurance has been cut by a further 2p, so workers will pay 8% of their earnings between £12,570 and £50,270, instead of the 12% it was before Autumn.
But tax thresholds – the amount you are allowed to earn before you start paying tax (and national insurance) and before you start paying the higher rate of tax – will remain frozen.
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This means people end up paying more tax than they otherwise would, when their pay rises with inflation but the thresholds don’t keep up. That phenomenon is known as “fiscal drag” and it’s often called a “stealth tax” because it’s not as noticeable immediately in your pay packet.
Enter your salary to the nearest £1,000 in our calculator to see how much better or worse off you are overall, once they balance out against one another.
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That low threshold of £12,570 has been in place since April 2021. The Office for Budget Responsibility say that if it had increased with inflation as normal it would be set at £15,220 for 2024/25.
Workers would earn an extra £2,650 tax free each year in that case.
The higher threshold would be more than £61,000, meaning someone on a £60,000 salary would be paying the 40% income tax rate on almost £10,000 more of their earnings.
That would cost an extra £2,000 over the course of a year, more than offsetting the gains from cuts to national insurance.
Overall, workers are better off if they earn between £32,000 and £55,000, or more than £131,000, but everyone else will be paying more in 2024/25 than they would have done if the government had raised the tax thresholds as normal.
Someone on a £50,000 salary is best off, by £752 a year – not far off what the average package holiday to Europe cost in 2023.
That’s because they benefit from the maximum amount of lower national insurance before falling into the high tax bracket.
But someone on £16,000 a year will pay £607 more in total – equivalent to more than three months of average household spending on food.
Their income level means national insurance savings are limited but they are paying 20% in income tax on an additional £2,650 of earnings.
The calculations don’t account for any more complex tax deductions or credits for different groups of people, for example student loans, pensions or childcare.
But separate Sky News data analysis shows how young graduates now take home £1,200 less on average each month than they did before the pandemic after adjusting for inflation.
Methodology
Sky News has taken figures for what the new thresholds from 6 April 2024 would have been if they had increased with inflation from the Office for Budget Responsbility.
To work out how much less national insurance people will pay in 2024/25, we have worked out how much you would have paid on the 12% rate with the current thresholds, and how much you will pay on the 8% rate. This value will always be positive if you earn more than £12,570.
To work out how much fiscal drag has cost you, we have applied the new thresholds from ICAEW to the lower 20% rate of tax, the higher 40% rate, and the highest 45% rate. We have also assumed that the taper, when you start losing your personal allowance, starts at £100,000 and you lose £1 for each additional £2 earned, as it was before. This value will always be negative if you earn more than £12,570.
We ran the workings for these calculations by the Chartered Institute of Taxation who corroborated our findings.
To work out the difference we have taken the fiscal drag figure away from the national insurance figure. If it’s a positive number you are taking home more pay, but if it’s negative you are taking home less pay.
That means that the fiscal drag savings assume that national insurance is 8% rather than the 12% it was before. If national insurance had stayed at 12%, the effect of fiscal drag would have been even greater for lower earners.
The Data and Forensics team is a multi-skilled unit dedicated to providing transparent journalism from Sky News. We gather, analyse and visualise data to tell data-driven stories. We combine traditional reporting skills with advanced analysis of satellite images, social media and other open-source information. Through multimedia storytelling, we aim to better explain the world while also showing how our journalism is done.