Taxes are increasing this year

It is likely that 2022 might see an end to lockdowns, but the residual economic  repercussions are going to be felt in all of our pockets this year.

Not only are we facing increases in the cost of electricity and gas but are also looking at the effect of inflation on our savings and spending power. Inflation is predicted to go as high as 7%/1. However, it is also important to look at the extra taxation we are now facing from April 2022.

Analysis by investment platform AJ Bell suggests that households face a likely £2,417 cost of living increase when cost of living rises are taken into account/2.

National Insurance

From the 6th April 2022 to 5 April 2023 National Insurance contributions will increase by 1.25 percentage points/3. The increase will apply to employees (Class 1) and the self-employed (Class 4) as well as to employers (Class 1, 1A and IB) but will not apply to workers who are over the state pension age.

The official reason for the increase is described as a levy to go towards the NHS, health, and social care.

It has been calculated that depending on earnings, the increases* will look like this: –

Salary

£20,000 – an extra £130 pa
£30,000 – an extra £255 pa
£50,000 – an extra £505 pa
£80,000 – an extra £880 pa
£100,000 – an extra £1,130 pa

State pensions

The state pension is increasing by 3.1% in April, but with the spectre of increasing inflation this Spring which according to the Bank of England is likely to reach 7% before falling back/1. Consequently, pensioners are going to be worse off in real terms.

In a move which puts more pressure on pensioners, a freeze has been placed on increasing the value of state pensions for this financial year. Since 2010, pension values have increased by at least 2.5% to keep in line with inflation each year under a ‘triple lock’ arrangement, however the freeze has been attributed to the Covid-19 pandemic causing an unexpected rise in wages, which has led to high inflation and would otherwise mean pensions increasing by 8%/4.

Together with increasing costs of living, 2022 is likely to be remembered as the year of belt tightening.

Article supplied by SJ Financial Solutions - Stuart Mosley

Stuart Mosley (CeFA, CeMap, CLTM) founded SJ Financial Solutions in June 2005 having spent 12 years with big corporates such as Halifax and Santander. He felt the personal touch and straight speaking was missing from mortgage and protection services and set up SJ Financial Solutions to change this.

If you would like to get in touch with SJ Financial Solutions please see contact details here.

Sources

1. Bank of England (2022) Will inflation in the UK keep rising? Available at: https://www.bankofengland.co.uk/knowledgebank/will-inflation-in-the-uk-keep-rising (Accessed 16th Feb 2022)
2. Suter, L., Khalaf, L. & Selby, T. (2021) Ten Big Financial Changes for 2022. Available at: https://www.ajbell.co.uk/news/ten-big-personal-finance-changes-2022and-what-they-mean-savers-and-investors (Accessed 16th Feb 2022)
3. HM Revenue & Customs (2022) Rates and thresholds for employers 2021 to 2022. Available at https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2021-to-2022 (Accessed 16th Feb 2022)
4. Peachey, K. (2021) What is the Triple Lock and why has it been suspended? Available at: https://www.bbc.co.uk/news/business-53082530 (Accessed 16th Feb 2022)

Published: 25 February 2022