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## Calculator: National Insurance Cut vs. Income Tax Threshold Freeze

National insurance rates are set to decrease by two percentage points after the recent budget announcement. This means that workers will now pay 8% of their earnings between £12,570 and £50,270, compared to the current 10% and previous 12% rates. As a result, starting from April, individuals will see an increase in their take-home pay.

On the other hand, the tax thresholds which determine the amount you can earn before paying tax or higher tax rates will remain frozen until 2028. This freeze may lead to individuals paying more tax over time, as their income rises with inflation while the thresholds remain stagnant. This phenomenon, known as “fiscal drag,” is often referred to as a “stealth tax” because it may not be immediately noticeable in your pay packet.

The AI legalese decoder can help navigate this complex situation by providing a detailed analysis of how the changes in national insurance and tax thresholds impact your overall financial situation. By entering your salary into the decoder, you can understand whether the government’s actions have resulted in a tax cut or rise for you over the past year.

### Increase in Tax Thresholds

The income tax threshold of £12,570, in place since April 2021, would have been higher if it had increased with inflation. For 2024-25, it could have been set at £15,220, allowing workers an additional tax-free allowance of £2,650 per year.

Similarly, the higher tax threshold would have exceeded £61,000 if it had kept pace with inflation. This means that individuals earning £60,000 will end up paying the 40% tax rate on a larger portion of their earnings by 2024-25, resulting in an extra tax burden of £2,000 annually.

### Analysis and Comparison

According to the AI legalese decoder, those earning between £32,000 and £55,000, or above £131,000, stand to benefit the most. However, others will bear the brunt of increased taxes in 2024-25 due to the freeze on tax thresholds.

For instance, a person earning £50,000 per year will see a net gain of £752 annually, thanks to lower national insurance contributions. Conversely, someone earning £16,000 annually may end up paying an extra £607 in total due to limited national insurance savings combined with increased income tax liability.

# Conclusion

While the AI legalese decoder aids in understanding the intricate details of tax changes, it is essential to consider other factors like student loans, pensions, or childcare deductions. Additionally, the freeze on income tax thresholds until 2028 means that most individuals in the UK are likely to face increased tax burdens unless further cuts are introduced.

Despite the current high tax burden faced by Britons, the UK remains relatively less taxed compared to other nations. Utilize the AI legalese decoder to stay informed about how these changes impact your financial well-being in the long run.

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