4 Ways The New Budget Will Impact Your Household Income This Year
By Alex Pritchard
Are you aware of how new budgetary changes will impact your household income this year? Getting clear on your financials and business outgoings will support you to steer clear of debt and make better investment decisions.
While there have been no significant developments in this tax year in comparison to the previous 12 months, the small changes that have been implemented will affect everybody to some degree.
In this blog, we’re going to explore the financial changes that are likely to impact you the most in this tax year.
The four main issues are:
- Your personal allowance has been frozen
Whilst your tax-free personal allowance remains static at £12,570 if you receive a pay rise in line with inflation, all of the additional money is subject to tax (fiscal drag) (because your allowance hasn’t increased).
- You will pay more national insurance
National insurance rates have increased by 1.25% for the basic tax rate payer, which means you will pay more to the government (the funds have been earmarked to help fund the gap in social care costs, support the NHS and take care of the costs of the pandemic). If you’re in the higher UK tax bracket, you’ll now pay 3.25% instead of 2%, which over a year can add up to a sizeable amount, leaving you with less.
- Increased cost of living
Utility bills and fuel costs have increased, and the same groceries you bought at the start of the year are now likely to cost more.
- Increased mortgage payments
If you have a variable rate mortgage, you will already have experienced an increase this year, and you are likely to experience at least one more hike in 2022.
At least three out of these four changes are likely to affect most of the UK’s employees, but there are also challenging times ahead for business owners.
What’s new for business owners this fiscal year?
Small and medium-sized businesses are likely to be less prosperous this year because of fiscal drag, which means you’re working the same hours for less profit.
The national insurance rate for employers has increased to 15.05% from last year’s 13.8%.
In short, this means that small and medium-sized business owners are likely to find the next year more financially challenging. It’s wise to explore the changes and consider your best options, so here are two suggestions that may suit you:
- Pass the cost to the consumer
This may or may not support you given that your personal allowance is static and you pay more national insurance. Weigh up whether passing the cost to the consumer means you will need to sell less and potentially have to work less; or will you have to work harder to sell at a higher price?
- Nurture your investments
Make sure that your investments are well placed given the country’s changing financial landscape. It’s important that any investment portfolios are diverse and as viable as they were pre-April.
What else do I need to know in 2022–2023?
You might also like to bear in mind the following:
Fiscal drag will also impact your pension. You can put a maximum of £40k a year into your pension pot, but due to the rise in the cost of living, its buying power is reduced.
- Inheritance tax
This tax remains the same (£325k allowance), so even though your assets are rising in value, the percentage of tax you pay has not changed. The government has a set allowance that enables a married couple to each give away up to £175k, but there are terms and conditions, such as your house must be worth in excess of £350k, and to get the most out of it, you can only give the funds to direct descendants.
Whilst overall there are no substantial financial changes for 2022–2023, the smaller changes will give you less return for your efforts. The government is spending more than it is bringing in, which means we pay more tax to cover those costs.
However, if you take the time to enlist the help of an independent financial adviser, there may be legitimate allowances and tax reliefs available to you (depending on your personal circumstances).
The views expressed in this article are those of the author and do not constitute financial advice. Applewood Independent Ltd is authorised and regulated by the Financial Conduct Authority. For financial advice designed for you and your specific circumstances, please contact the author using the contact details provided in this article or, alternatively, contact the Applewood Independent Ltd office on 01270 626555.
The value of your investment can go down as well as up, and you may not get back the full amount invested.
Past performance is not a guide to future performance.