The important changes coming to Universal Credit and National Insurance this month

EMBARGOED TO 0001 THURSDAY FEBRUARY 10 Undated file photo of money, as a Government plan to stop employees pretending they are private contractors to avoid National Insurance has raised more money than first thought, but has been costly for employers.
Many incomes will change this month because of changes to National Insurance and Universal Credit. (PA)

There are some key changes to Universal Credit and National Insurance this month.

Millions of Britons will see their benefits and contributions change in the coming days and weeks.

The UK remains in the grip of a cost of living crisis, with many people changing their spending habits to cope.

Inflation - the rate at which prices increase - was recorded at 9.1% for May, its highest level since March 1982.

Britons are also dealing with soaring fuel costs - the average price of a litre of petrol at UK forecourts reached a new high of 191.5p on Sunday, while the average price of diesel was 199.0p per litre.

Watch: What is National Insurance and do I have to pay it?

A study published by the Institute for Fiscal Studies (IFS) on Monday revealed that 49% of children in single-parent families in the UK were living in relative poverty at the onset of the coronavirus pandemic.

This percentage equates to 1.5 million children. It is almost double the rate for children living in two-parent families (25%).

Many people will be watching their finances carefully this month as changes to Universal Credit and National Insurance are introduced.

What is happening with National Insurance?

National Insurance are the contributions you pay to qualify for certain benefits and the state pension.

From tomorrow, Wednesday 6 July, the earnings threshold for paying National Insurance Contributions (NICs) will increase.

Chancellor Rishi Sunak in conversation with Shevaun Haviland, Director General British Chambers of Commerce, during the British Chambers Commerce Annual Global conference at the QEII Centre, London. Picture date: Thursday June 30, 2022.
Chancellor Rishi Sunak announced changes to Universal Credit and National Insurance earlier this year. (PA)

Up to 5 July, any employee earning more than £9,880 per year, or £190 a week, had to pay NICs. However, the threshold will be raised from Wednesday to £12,570 a year or £242 a week.

There is a government calculator for people to work out how much their NICs will drop.

A person on an annual salary of £25,000, for example, will pay £244 less per year because of the change.

Chancellor Rishi Sunak said seven out of 10 people will pay less National Insurance from this week.

How may the National Insurance change affect Universal Credit?

Universal Credit is a monthly payment to help with living costs and is available for those on low income, or those who are out of work or cannot work.

Universal Credit is replacing other benefits and tax credits such as child tax credit, housing benefit, income support and income-based Jobseeker's Allowance.

The change to National Insurance could mean someone on Universal Credit paying less tax and having more take-home pay.

If you are working, the amount of Universal Credit you receive reduces as you earn more.

EMBARGOED TO 0001 THURSDAY MAY 19 File photo dated 06/10/21 of a Universal Credit sign on a door of a job centre plus, as a new �600 million plan to fight benefit fraud and save the taxpayer �2 billion over the next three years is to be unveiled by the Government. Issue date: Thursday May 19, 2022.
Households on Universal Credit are to receive part of a payment this month to help with the rise in the cost of living. (PA)

Once you earn more than your work allowance, your Universal Credit payments are reduced at a steady rate, known as the Universal Credit earnings taper.

This taper rate is currently 55%, after Sunak reduced it from 63% in his Autumn 2021 budget, meaning that for every £1 you earn over your work allowance, your Universal Credit will be reduced by 55p. This amount is automatically deducted from your Universal Credit payment.

What else is happening with Universal Credit in July?

In May, Sunak unveiled a £15bn aid package to help UK households struggling with rising energy bills.

This included a £650 payment for more than eight million households on the lowest income.

These households will receive the first instalment of this payment between 14 July and the end of the month.

It will be a payment of £326. The second payment of £324 will go into their bank accounts in the autumn.

The payments will be made to households on the following benefits: Universal Credit, Income-based Jobseekers Allowance, Income-related Employment and Support Allowance, Income Support, Working Tax Credit, Child Tax Credit and Pension Credit.

Watch: Rishi Sunak celebrates arrival of Universal Credit taper cut