That may well be required after Wednesday 6 April ushers in the new 2022/23 tax year.
New years are normally a cause – or excuse – for celebration, even if the pandemic has changed that in recent times. From a personal financial standpoint, this upcoming tax year may well offer more concern than celebration.
Income tax
Usually the new tax year begins with an inflation-linked increase in the personal allowance and, outside Scotland, a rise in the higher rate tax threshold. For 2022/23 that is not happening, despite inflation ending 2021 at a rate of 5.4%. The result is a stealthy tax increase.
To add to the pain, there is a 1.25 percentage point rise in all dividend tax rates above the £2,000 dividend allowance (frozen since 2018/19). If you are a higher rate taxpayer, more than a third (33.75%) of each dividend will disappear in tax.
National insurance
National insurance contribution (NIC) rates for employees, employers and the self-employed will also all rise by 1.25 percentage points. NICs are a tax in all but name, with a starting point for individuals nearly £2,700 lower than the income tax personal allowance. On earnings of £40,000 a year, the NICs increase for an employee will equate to about £6.50 a week.
Pensions
All state pensions increase by 3.1% in April. But why 3.1%? The answer is in two parts:
· The Triple Lock, which would have produced a much higher uplift to the main old and new state pensions, was suspended for the 2022 increase cycle; and
· April’s inflation-linked tax rises are based on the rate of CPI inflation for the previous September. Usually, the seven-month lag is not very significant, but with inflation rising sharply, it is on this occasion.
VAT
The cost of dining out rises from 1 April, as VAT reverts to 20% from its pandemic-reduced level of 12.5%. With food inflation also on the up, restauranteurs may see April as a good time to introduce new, more profitable menus.
The new year is a time of resolutions and the same is true of the new tax year. In this instance, the resolution should be to make sure your personal finances are as prepared as possible for the taxing times ahead.
The value of tax reliefs depend on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax or benefit advice.