More than two million low-income workers will no longer pay Social Security because of a change in the way the tax is collected.
Employees can now earn £12,570 a year before paying Social Security, up from £9,880 last year.
Although in April the government increased the rate paid to raise money to fund health and social care.
Taken together, these changes mean that workers earning less than around £34,000 a year will pay less.
Analysts said the latest change in wage packages, which will take effect from Wednesday, represents another twist in the “swings and roundabouts” of National Insurance policy.
As individuals help manage the rising cost of living, savings could quickly be wiped out by rising prices and bills, they said.
Workers in the UK pay social insurance on their wages, employers pay additional contributions for employees and the self-employed pay it on their profits.
The first change in payments came in April when workers, businesses and the self-employed started paying an extra 1.25p in pounds sterling.
This meant workers now pay 13.25% and 3.25% respectively, rather than paying National Insurance contributions of 12% on earnings up to £50,270 and 2% on anything above that.
The self-employed have seen their equivalent rates rise from 9% and 2% to 10.25% and 3.25%.
- How much will the tax changes in April cost me?
Ministers said the money raised will go towards health and social care in England and will be available to administrations in Scotland, Wales and Northern Ireland to spend in the same way.
The move drew disapproval from opposition parties and some backbench Conservative MPs as it coincided with price hikes and hikes in energy bills.
Rishi Sunak, as chancellor, responded by raising the earnings threshold above which social security is paid by workers to £12,570 – a directive that has now come into force.
The government said 2.2 million workers would be exempted entirely from paying Social Security contributions and would continue to receive credits towards their future state pension. Seven out of ten employees would be better off as a result of the changes, it said.
For example, an employee on £20,000 a year pays £178 less National Insurance in 2022-23 than the year before, while someone on £50,000 pays £197 more.
The last change will be in April 2023 when Social Security rates will return to their previous levels. The surcharge of 1.25% is levied as a new health and social security contribution and, in contrast to national insurance, is also paid by state pensioners.
Alice Haine, personal finance analyst at investment platform Bestinvest, said the savings for some people could “make the difference between having dinner every night and sometimes not having dinner.”
“For others, however, this amount is unlikely to leave a dent in their budgets as they struggle to pay household bills amid rampant inflation as soaring food, fuel and energy prices become the norm,” she added.
Many employers are paying more into Social Security, and business groups say it could affect their ability to pay higher wages.
“Higher Employer Social Security contribution rates still mean less money in the economy for wage increases, let alone sustained investment, recruitment and discretionary spending,” said Tina McKenzie of the Federation of Small Businesses.
Overall, increases in Social Security for higher-income employers and workers will bring in an extra £10.9 billion in a year for the government, according to the Institute for Fiscal Studies.
Steven Cameron, director of pension company Aegon, said ministers had been “playing on seesaws and merry-go-rounds” with income tax and Social Security.
Because the income tax exemption limit, the so-called personal allowance, was frozen in the budget from April 2021 to 2026. The income level above which the higher tax rate is paid was also frozen.
The result is that some individuals who receive raises are dragged into a higher income tax bracket.
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