30 Jun 2022

How can individuals best manage the current hike in inflation?

You might feel like you’re having an overwhelming sense of déjà vu with this blog but don’t worry, we wrote something similar not too long ago! Whereas the previous article focused on how businesses can manage the current hike inflation, with snippets of advice to companies of all shapes and sizes on how they can best navigate the current economic climate, individuals will be feeling the squeeze too.

The Bank of England’s most recent announcement, hiking interest rates up to 1.25% and predicting an inflation rate of 11% by the end of the year, could potentially equate to an extra £800 being spent on energy bills alone – it’s an incredibly worrying time. So, as the next few months loom, what can you do as an individual to manage these increases?

Ensure to review your tax code and tax benefits
How much you get paid each month (after tax) will very much depend on your tax code status. This can be affected by things such as what tax bracket you’re in, the benefits you receive and any allowances that have been added, for example.

However, checking a tax code isn’t something that people do routinely, but could be an easy way to find out if you can pocket just a little bit of extra income per month. For example, have you claimed working from home allowance, whether it’s ongoing or backdated from the times during the pandemic where we weren’t able to go to the office? For the basic rate taxpayer, this allowance could add £62.40 per tax year into your pay packet, or £124.80 for higher rate taxpayers. Don’t forget however, you can only claim the working from home allowance unless you have no choice but to work from home.

Another example is if you must wear a uniform to work and therefore need to do extra washing. While it may sound insignificant, this can also be claimed as a tax relief.

Also, are you currently paying additional tax on any benefits that no longer serve a purpose to you? If so, could you look to convert this benefit into income instead or find a better deal? A regular example is that of company cars. This benefit is both expensive for the company and the individual involved. A cheaper option would be to explore electric vehicles (EVs) which are subject to far lower Benefit in Kind tax compared to petrol and diesel counterparts.

Of course, EVs may not be accessible to all currently, so don’t forget about fuel allowance which can be claimed at no more than 45p per mile, or 25p per mile if the mileage exceeds 10,000.

Childcare and child benefits
Childcare is a hefty expense and, where possible, help for parents, carers and guardians is greatly appreciated. Any parent earning under £50,000 per year can claim child benefits but as soon as the £50,000 threshold is exceeded, this benefit is then lost and must be repaid. It’s crucial that you either look to remain under the £50,000 threshold to ensure you can continue being supported with this expense or, if you must exceed £50,000, you begin to plan for this loss of benefit.

Speaking to your employer about potential childcare support may also be an option here. Many employers, as a tax-free benefit, will support employees with childcare vouchers which can be used towards holiday clubs and nurseries.

Other benefits to explore which will not affect your child benefits are child tax credit, working family credit and universal credit – all of which could be the difference between a very tight month and a month that is a little easier to manage.

Look at your cashflow and budget
While words such as cashflow and budget are regularly thought of to be business-related terms, it’s crucial – especially in times such as now – that individuals also have a good grasp of their incomings and outgoings to best prepare for those tighter months and not be left in debt.

Whether you do this manually or via a tool or technology, ensure to know exactly what your financial situation looks like on a month-by-month basis. This will help to inform you not only how much money you have to spend, but how much you can ideally save, too.

It’s not an easy time for anyone at the moment, and with more downturn on the horizon, it is anxiety inducing for many. If you need support with your personal finances and want to know how to best support yourself and your family this year, please come and talk to one of our friendly team who will be more than happy to help.

Clare Bowen