National Insurance hike: A ‘great way’ to mitigate the tax burden | Personal Finance | Finance
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The Government says the increase is necessary in order to raise £12billion to fund social care and the NHS. The Chancellor Rishi Sunak is pressing ahead with the hike despite much opposition and the fact that it will put financial strain on many households.
With inflation on the rise, and energy bills set to soar, an expert has suggested a way that people can keep more of their own money and mitigate the tax burden.
Olivia Kennedy, financial planner at Quilter said: “Today’s report from the Office of National Statistics highlights how deeply the cost-of-living crisis is impacting upon people in Britain, and that’s before the increase to National Insurance by 1.25 percentage points hits on April 6.
“The impact of soaring inflation and increased energy and water bills has seen the number of adults facing higher living costs rise, up from six in 10 in November to over eight in 10 in March.
“Unsurprisingly, the most common cause of the cost-of-living increase at the start of the year came from an increase in the cost of food shopping, gas and electricity bills and the price of fuel. In the current circumstances, such prices are unlikely to slow any time soon.”
READ MORE: State pension rise to tax threshold freeze – 5 key changes coming next month
Ms Kennedy explained that although it may be difficult to reduce outgoings on necessities such as energy bills, and food, there are other things that people can consider.
She continued: “While it is often difficult to reduce outgoings, particularly on energy bills, there are ways to make your earning go further to help shield against cost-of-living increases.
“The planned rise in national insurance contributions means a worker earning £50,000 a year will see their take-home pay fall by £196.28, while someone earning £80,000 will lose £571.08 annually.
“Salary sacrifice is a great way to mitigate national insurance increases and boost your pension at the same time.
“By making contributions to your pension or buying things from your income before tax, such as buying a bike through a work scheme, you can reduce your gross income and pay less in national insurance. In addition, any income that can be taken from alternative sources, such as rental income, will not be impacted by the NI hike.”
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Britons who are in the fortunate position of still having disposable income left at the end of the month, may wish to consider the best way to save these extra funds.
She explained that despite the benefits on having emergency cash, holding one’s long-term savings in cash could see them lose money in real terms.
The research highlighted that having emergency cash is “crucial” but the current rate of inflation is no match for this.
She added: “Instead, investing it for the long-term could be a better option as stocks and shares offer the best potential to beat inflation.”
The Bank of England’s latest Money and Credit statistics showed more people are becoming reliant on borrowing, with £1.5billion of credit card borrowing seen in February, up from just £400million in January.
Ms Kennedy said that we are likely to see this rise further over the coming months as more people struggle to make ends meet.
She continued: “The data illustrates a real disparity in terms of who the cost of living impacts the most heavily.
“Eight in 10 older adults reported that their cost of living had increased, with those aged 55-64 feeling the squeeze the most.
“In comparison, younger adults appear to be faring slightly better. Only four in 10 adults aged 16-24 had seen increased costs, while seven in 10 of those aged 25-34 have started to feel the pinch.”
Ms Kennedy concluded: “Given the Chancellor’s lack of support for pensioners in his recent Spring Statement, this figure is likely to get worse.
“The new energy price cap will come into effect from Friday, and we will see a further rise in October. Alongside other rising prices, this will no doubt produce a big shock for households.”
While someone earning £100,000 a year is set to pay the highest National Insurance bill – £7,008 a year (an increase of £1,130), the proportion of their pre-tax income paid in NICs will be just seven percent. Those on £30,000 a year will pay nine percent of their gross salary in NICs.
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