Cost of living crisis: The pressure is on – here’s what you can do | consumer affairs
Jhe cost of living crisis is set to deepen in April, when National Insurance contributions will rise by 1.25 percentage points, as will inflation, energy and water bills soar. There may not be a way to reduce your expenses, but it is possible to increase what you have in your account or increase your income.
Make as many “salary sacrifices” as you can
From April 6, 2022, the planned increase in National Insurance contributions means that a worker earning £30,000 a year will see their net pay cut by £17 a month, or £214 a year, while a worker earning £50,000 will lose £38 a year. month, or £456 per year.
However, you may be able to avoid some of this increase in your bill by paying for certain things before you are taxed. Your employer may allow you to donate to charity (for example, through the Charities Aid Foundation’s Give as You Earn program), buy a bicycle, or buy an ultra-low-emission car through a wage sacrifice. These payments are deducted from your gross income. The lower your gross income, the less income tax and social contributions you have to pay.
“Many employees are unaware of the savings they can achieve by opting for the wage sacrifice,” said Dan Tomassen, spokesman for accounting firm HW Fisher.
This is especially true for employees who were automatically enrolled in a pension plan, he says. “Most of the time, the pension deductions that the employee must contribute are taken from his net salary – therefore after deduction of tax.” If your employer instead allows you to pay these contributions out of your gross salary, via a wage sacrifice, this will reduce the amount of National Insurance you have to pay.
Previously, employees could pay for childcare by sacrificing their salary, but this scheme has been replaced and is only available to those who signed up before October 2018.
Another option, if your employer offers a stock incentive plan, is to buy “partnership stock” in the company you work for on your pre-tax salary. This will reduce the amount of National Insurance you will have to pay this year and – if you hold onto the shares for at least five years – you will never pay tax on their value. However, you may be liable for capital gains tax if the value of the shares increases.
Claim your unused tax allowances
Another way to compensate for the increase in national insurance is to take advantage of the tax allowances to which you are entitled.
For example, if you have been told to work from home – however often – you are entitled to help from HMRC for expenses such as energy, internet costs and business calls. Your employer can pay you a fixed amount of up to £6 per week, tax free, to cover these costs or you can claim tax relief on £6 per week from the government instead.
“Your claim can also be backdated to the last tax year, and even if you only worked from home one day during the tax year, you can claim for the whole year,” explains Paul Gibbons, Payroll Specialist at PayDashboard. Bear in mind that you will get relief at the rate at which you pay tax – so a basic rate taxpayer will get £1.20 a week of tax relief (20% of £6), while a higher rate taxpayer will receive £2.40 per week. This means that basic rate taxpayers who work from home can recover £62.40 a year in tax, while higher rate taxpayers are entitled to £124.80.
Another tax relief you can claim is marriage allowance, which applies not only to marriages but also to civil partnerships. It is estimated that around 2.4 million eligible couples are deprived of this tax relief, worth up to £252 a year. “A lot of people don’t really know this allowance exists,” Gibbons says.
To apply, one member of the couple must earn less than £12,500 and their spouse or civil partner must be a basic rate taxpayer. “Cohabitation is not enough,” explains Emma Rawson, technical officer at the Association of Tax Technicians. You can backdate your claim to any tax year since 5 April 2017 that you were eligible for, and if your spouse or civil partner has died since then you can still make a claim by calling HMRC.
If you are required to wear a specific uniform at work, you may be able to claim a tax reduction on the cost of purchase, cleaning, repair or replacement. It’s “one of the most underused deductions that’s available to a lot of people,” Tomassen says.
To be eligible for the relief, you must be required to wear “specialized clothing recognizable as a uniform”, which demonstrates to a member of the public that you practice a particular profession. If your employer simply asks you to come to work wearing a certain color shirt, you will not qualify.
You can claim relief from the cost of repairing or replacing “small tools” such as drill bits or chisels that you need to do your job, as well as specialized boots or particular shoes that you must wear while on the job. of your uniform. It should be noted that a deduction is not allowed for personal protective equipment.
The standard sum on which you can claim tax relief is £60 per year. Some industries qualify for larger allowances. An NHS paramedic who washes their uniform at home, for example, can claim tax relief on £185 of uniform expenditure each year, meaning they will take home an additional £74 a year if they are a higher rate taxpayer.
Check that you are claiming the benefits to which you are entitled
It only takes 10 minutes, on average, to check if there are any state benefits you can claim through the free benefits calculator on the site. “We believe around £15bn of benefits are unclaimed in the population,” said Dr Phil Agulnik, an empowered director. The main problem, he says, is that people assume their income is too high to qualify for benefits, “so they don’t bother to check”.
Indeed, means-tested benefits are granted by assessing your income and your needs. “The more needs you have, the more likely you are to qualify because you need more help,” says Agulnik.
Retirees with large council tax bills and people who work but have low incomes are often entitled to claim more benefits than they realize, he says. You may be eligible for Universal Credit, for example, even if you have a job. This benefit acts as a passport, then allowing you to claim other benefits and tax credits, such as housing allowance and child tax credit. Recipients of Universal Credit may also be eligible for health care assistance, housing subsidies, free school meals, energy efficiency grants, and the warm housing rebate.
So even if you find you’re only eligible for a few Universal Credit pennies each week, it’s worth claiming this benefit to gain access to other help you may be eligible for. “Check for yourself,” insists Agulnik. “Go through the calculator – £15billion is a lot of money.”
Unclaimed benefits: who is missing?
Entitledto’s estimates of unclaimed benefits are based on what it describes as “summary statistics” because published government data is not good – and the situation is about to get worse. The Department for Work and Pensions has recently issued a notice that it will no longer publish take-up rates for a number of benefits paid to adults of working age.
Of the benefits included in the figures, the two largest relate to housing – around 900,000 families missed out on housing benefits worth a total of £2.8billion. Council Tax Support – a reduction of up to 100% of your bill – was unclaimed by 2.8 million families (although the figures were last updated over 200 years ago). ten years). This aid was worth a total of £2.6 billion. Hundreds of thousands of households were also missing child tax credit or working tax credit, with around £2.5billion unclaimed.