With the Chancellor under pressure to raise revenue while sticking to strict borrowing rules, one idea being floated ahead of the Budget is to shift the balance between National Insurance (NI) and Income Tax. It’s a question that naturally arises so here’s our take on it.

According to the Resolution Foundation – a think tank that has close links to policymakers – a 2p cut in NI, matched with a 2p rise in Income Tax, could raise billions while spreading the tax burden more evenly. The government hasn’t confirmed this, but it’s being widely discussed as an option.

What that means in plain English

• NI is mostly paid by people in work.
• Income Tax is paid on a broader range of income – salaries, pensions, dividends, and rental income.

So if NI goes down and Income Tax goes up:

• For PAYE professionals, it could feel like nothing much has changed – what you save in NI, you pay in tax.
• For families with pensions or investment income, the overall bill could rise.
• For business owners and directors, who often take a mix of salary and dividends, the detail could change the balance of what’s most efficient.

Think of it like shifting the load from one side of the see-saw to the other. The total weight doesn’t change, but who feels it does.

Who needs to pay attention (in plain English)

• If you’re employed and paid through PAYE
  A cut in NI sounds good. But if your Income Tax goes up by the same amount, it cancels out. Your take-home income could end up looking much the same – the Chancellor gives with one hand and takes with the other.
• If your household income comes from more than just a salary
  Here’s where it changes. NI only applies to earnings from work. It doesn’t apply to pensions, dividends, or rental income. But Income Tax does. So if Income Tax goes up, anyone with pension income, dividend payments, or property income could end up paying more.
• If you’re a business owner or company director
  Many directors take a small salary (which NI applies to) and top up with dividends (which NI doesn’t). If Income Tax rises, the dividend part of your income could face a bigger bill – and the salary part might not benefit much from the NI cut.

Why this matters

This isn’t just a technical swap. If the Chancellor makes this move, the headlines won’t tell you the full story. The important part is what it means for you:

• Bonuses may feel smaller than expected.
• Income from dividends or pensions could face a bigger bill.
• Business owners may find the salary/dividend mix less efficient than before.

It’s the practical impact – not the politics – that matters most.

Our perspective

Obviously though at the moment, this is all hearsay. This article explains why waiting for the facts is the best option.

At Porta, our value of radical transparency means we’ll always cut through the jargon and explain what’s really going on. If this measure makes it into the Budget, we’ll be analysing what it means for professionals, families, and business owners in real time on the November 26th. Watch this space for our live commentary.

Important: Important information: This article provides general information only and does not constitute personal financial advice. The information is based on our understanding of current regulations, which may change in future. Decisions about your finances should always be made based on your individual circumstances. If you’re unsure about the suitability of any course of action, you should seek regulated financial advice. The Financial Conduct Authority does not regulate tax planning, estate planning or wills. The value of your investments can go down as well as up, so you could get back less than you invested.

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