It’s all over the news that 2022 will be the year of the price hike. From food, to fuel, to taxes, UK households will see an increase in household bills from Spring. The biggest thing for businesses is the increase in Dividend Taxes and National Insurance Tax.
What does this mean for smaller business owners? We’ll explain the new increases and how this may affect you.
Dividend Tax Rise
As of April 2022, the rate of applicable Income Tax is increasing. This is to help the government fund the Health and Social Care Settlement. The basic rate is moving from 7.5% to 8.75%, the higher rate will increase from 32.5% to 33.75% and the additional rate goes from 38.1% to 39.35%. These increases also stay in line with the income tax increases.
The government has not only used this to fund the health and social care levy but to help cut back on the number of individuals who open businesses to pay dividends and have a reduced tax bill.
Dividend tax payers are those investors who get that earn money from company shares they own.
The dividend allowance is staying at £2,000, any dividend tax payable is only charged once you earn over that allowance.
National Insurance Rise
Another change from April 2022 will be the increase in National Insurance rates. This rise is also going towards the health and social care settlement.
Employers, employees and the self-employed pay National Insurance, so this will affect all workers. This includes those of pension age who are still working after state pension age.
National Insurance is also being raised by 1.25%, meaning that employees contributions go from 12% to 13.5% and employer contributions go from 13.8% to 15.05%.
The lower earnings limit will increase by 3.1% whilst upper earning thresholds will be frozen at £50,270. This means that you will keep more of your money before National Insurance contributions get taken out.
The Bank of England has stated that it expects inflation to rise to 7%. This will lead to a rise in fuel, food, energy and commodities, meaning households will see their cost-of-living expenses increasing. This is not the highest inflation rate that the UK has seen, but it is higher than it was 12 months ago and The Bank of England also advises that although this inflation will cause rising prices, they expect it to fall again towards the end of 2022 – the beginning of 2023, as per this report, they deduce it will be unlikely for prices to keep rising as sharply as they have done and this will mean that inflation will slow and drop back down.
It is no surprise that many people (as many as two-thirds according to a Which? report) are concerned about the rising costs of their food shop. A combination of inflation, labour shortages and shipping costs rising because of Brexit has resulted in shops having to increase prices to keep up with higher costs.
With increasing transportation costs, there is a further increase to fresh food costs and this will put further pressure on families trying to live healthily and provide cheaper meal options. Whilst we want supermarkets to remain as cheap as possible for as long as possible, supermarkets will have to pass on these price rises to us, eventually.
Energy Price Hike
It can be of no surprise that energy prices are increasing and this means rising energy bills for the majority of households. Because of an increase in wholesale products and energy company failures, energy costs have had to be increased. There is a cap on energy prices set at £1,277 and will likely rise by £500 or more according to Which?
We’ve all seen in the news that smaller energy companies have been going out of business due to these increasing costs. They can no longer absorb the costs as they were previously, but because of the tariffs they had, they couldn’t pass them on either. This means other energy companies are also trying to get to grips with an increasing customer base and increasing gas prices.
Phone, Broadband & TV
Consumers are also seeing prices for their mobile phone, broadband and TV packages. Roaming charges whilst in Europe are coming back into force for many users of EE and Vodafone.
Sky TV users will get their annual price increase, in line with inflation.
Other price rises
2022 is going to be the year of the price rise, along with the above there’ll be price rises for water, council tax, trains and petrol.
It’s not all doom and gloom though, there are rises for the national living wage and pensions. The national living wage for over 23-year-olds will go from £8.91 to £9.50 from April. Pensions will increase by 3.1%, which could be an additional £289 for pensioners.
Please speak to your accountant or a financial advisor if you need advice on any of these price rises. You can call us for advice on 01302 613 515 or email firstname.lastname@example.org.