Income tax and National insurance are taxes that most working people will have to pay. How much you pay depends on how much you earn and where your income comes from.

If you are above the pension age, you will not have to pay national insurance, but you may, however, still pay income tax depending on how much income and the type of income you will be generating.

Income Tax

Most people pay income tax through PAYE. You will be given a tax code that tells your employer or pension provider how much to deduct. Your tax code can also take into account taxable state benefits such as a state pension.

If you are self-employed earning more than £1,000 a year or have a very high income, your taxes may be more complex. Therefore, you will have to fill out a self-assessment tax return to find out how much income tax and national insurance to pay.

Income tax works in bands. If you are a high earner, you may pay a tax rate of 20%, 40% and 45% on different portions of your income. Your whole income is not taxed at the same rate.

Most taxpayers are granted a tax-free personal allowance:

• Currently, from 2021 until the tax year ending 2025, the personal allowance is £12,570.

• Earnings between £12,501 and £50,270 are taxed at 20%.

• Earnings between £50,271 and 150,000 are taxed at 40%.

• Earnings at £150,001 and above are taxed at 45%.

National Insurance

National insurance is paid by workers who are under the state pension age and by their employers. All eligible workers are provided with a National insurance number that is used to identify them for tax purposes.

Class 1 of National insurance applies to employers and employees:

• In the 2021 – 2022 tax year, employees earning below £520 a month do not pay National insurance but receive the benefits of paying (eg. NHS).

• Employees earning between £797 - £4189 a month pay 12% of their earnings in this category.

• Employees earning above £4189 a month pay 2% of their earnings above this threshold.

Married women who opted in the “small stamp” before April 1977 earning between £797 - £4189 a month pay 5.85% of their gross earnings.

From 6th April 2022, the National insurance contributions will increase by 1.25% for both employees and employers.

Those who are self-employed pay different thresholds of National insurance for the 2021 - 2022 tax year:

• Those making between £6,515 in profits per year pay £3.05 a week.

• Those earning profits between £9,569 and £50,270 pay 9% of profits in that category.

• Those earning above £50,270 pay 2% of profits over the threshold.

Employers pay a national insurance rate of 13.8% for all employees earning above £737 a month for the 2021 – 2022 tax year.

You can also choose to pay voluntary National insurance to avoid or fill gaps in your record at £15.40 a week for the tax year 2021 – 2022. These gaps may be due to low earnings, being unemployed but not claiming benefits, being self-employed but not paying contributions due to insufficient profits, or you were living or working outside the UK.

Gaps in your record may mean that you will be ineligible to receive the full state pension. You can check your national insurance record here.

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