On 23rd March 2022, the Chancellor of The Exchequer Rishi Sunak released his latest Spring Statement.
The Spring Statement comes at a time of high inflation, with surging energy, fuel and food prices impacting household budgets across the UK. Russia’s invasion of Ukraine has exaggerated inflation and, according to the Office for Budget Responsibility (OBR) is expected to drive higher inflation for longer. Inflation is now expected to peak around 8.7% in the fourth quarter, which is 4.3% higher than initially forecasted, and two quarters later.
In his budget for the new tax year, the Chancellor included tax and spending announcements, such as changes to the tax system and new support to help tackle the cost-of-living crisis. These changes will start to impact throughout April:
National Insurance – April 2022
As outlined in the statement, from 6th April 2022 to 5th April 2023 National Insurance contributions will increase by 1.25%. This applies if you are:
- An employer contributing
From 6th April, if you earn £190 to £967 a week, your NI contribution will now be 13.25%, and those earning over £967 a week will now contribute 3.25%.
If you have more than two jobs, you may be able to defer your NI contributions from one of your sources of employment.
National Insurance – July 2022
In July 2022, the primary threshold for starting to pay National Insurance contributions will be increased from £9,880 to £12,570. This means that you won’t have to pay NI tax on any earnings up to £12,570.
With the cost of living continuing to rise, this tax drop will help to relieve pressure on households. However, with changes introduced in April 2022, many people will have to pay more national insurance tax between April and July 2022.
Income Tax – April 2024
The government are also planning to cut the basic rate income tax, reducing it from 20% to 19% in April 2024 – and is the first cut to income tax in 16 years.
Although basic rate will remain at 20% for the 2022/23 tax year, when the change comes into place, income tax will reduce on earnings between £12,570 and £50,270. As a result, taxpayers will gain an average of £174 due to the 1% drop in income tax.
In the Spring Statement, the Chancellor also introduced key measures for the 2022/23 tax year to help households with the cost-of-living crisis. This includes:
- A temporary cut to fuel duty of 5p per litre
- An increase in the household support fund of £500m
- An increase in the employment support allowance from £4,000 to £5,000
How can you reduce the impact of these tax changes?
Better personal financial planning can help to get your finances in order and reduce the impact of increased National Insurance between April and July 2022.
With the support of an independent financial adviser, you can review and structure your finances in the most tax efficient way to minimise your tax outgoings or explore the future of inheritance tax and ways to reduce inheritance tax through exemptions.
How can KLO Financial Services help?
At KLO Financial Service, we offer personal financial services, from personal financial management to estate planning and inheritance tax planning.
We can help you stay up to date with changes to tax, such as those outlined in the Spring Statement, and minimise the impact of these changes on your finances.