The Salary Calculator

Buy Now, Pay Later: How Does it Work and What’s Changing?

by Madaline Dunn

Buy Now, Pay Later (BNPL) use has surged in recent years. From fridges and fashion to air fryers and furniture, more and more people are choosing BNPL payment plans to foot the bill — including for their summer holidays, according to information and insights company TransUnion.

A recent Loqbox report shared similar findings: among parents, BNPL use for summer travel now sits at 8.4%. This reflects a shift from 2024, it said, when such products were used as “back-up options.”

But consumers aren’t just using BNPL for big-ticket items. Research from the credit-building business revealed that, in the UK, one in 10 are now using BNPL to cover basics like food and fuel. 

And BNPL is not without risk. Unlike other types of credit, BNPL has remained unregulated, with debt charities and consumer experts alike sounding the alarm.

However, regulation to tame this “wild west” is on the horizon. Amidst these upcoming changes, this week at The Salary Calculator, we’ll walk you through: 

• What is Buy Now, Pay Later
• What’s driving BNPL use?
• What risks are associated with BNPL 
• What regulatory changes are incoming? 
• How can consumers protect themselves against unmanageable debt? 

What is Buy Now, Pay Later?

The BNPL market has quadrupled in size since 2020, and in the year to 2024, nearly 11 million people used these kinds of products, up from 8.8 million in 2022.

While BNPL has seen a recent growth in popularity, this kind of short-term financing — which enables shoppers to spread the cost of a purchase across a few weeks or months — has been around for over a decade.

And although BNPL is typically an interest-free form of credit, it’s still a loan.

When consumers use products from companies like Klarna or Clearpay, they’re agreeing to pay back the full cost and any late charges for missed payments. 

What’s Driving BNPL Use? 

For consumers, BNPL products can appear more accessible and convenient than traditional forms of credit. 

Indeed, BNPL offers are increasingly advertised at checkout. There are now over 20,000 merchants offering BNPL — both online and in-person — and that number is only growing. 

Likewise, some of these financial loans only require a soft credit check that’s not visible to other credit providers, which can make BNPL an appealing option for those without a strong credit history. 

And with the cost of living remaining high, the perceived affordability of this kind of credit among consumers is also a key driver in its growth, research shows.

“There is a crossover between BNPL use and people struggling with their finances”

Beyond this, some research has suggested that BNPL’s success is rooted in its “effective” use of artificial intelligence (AI) and algorithms.

So, who’s using these products the most? 

Research from Finder showed that BNPL is now most popular among Millennials, with 60% using such products “at some point,” followed by Gen Z (56%).

A number of factors underpin this trend, from a wariness of traditional credit and credit card approval challenges to a dissatisfaction with traditional banking services.

BNPL use is also high among those living in the most deprived areas of the UK and those with low financial resilience, according to the Financial Conduct Authority’s (FCA) recent Financial Lives report.

“Our research has suggested there is a crossover between BNPL use and people struggling with their finances,” said Simon Trevethick, head of communications at StepChange Debt Charity, adding, “Previous polling found that those who use BNPL are twice as likely as the general population to need to use credit to cover essential bills.”

This is corroborated by findings from the Money and Pensions Service, which revealed that 38% of BNPL users need “full debt advice,” and 35% are “at risk of needing debt advice.”

What risks are associated with BNPL?

While BNPL can appear an attractive option, it’s not “free credit” and carries with it potential risks.

Despite this, research points to a lack of consumer awareness regarding the costs of BNPL.

 “It’s a form of credit—and should be treated with the same caution”

In a study conducted for the Lending Standards Board (LSB) by RFI Global, only 52% of BNPL users reported being aware of late payment fees, while 50% were unaware of potential fees before incurring them.

Similarly, research from the Behavioural Insights Team (BTI) found that, of those surveyed, four in ten were unaware that they could be approved for BNPL “even if they could not afford it.”

“Consumers often fall into the trap of treating BNPL like an extension of their disposable income,” said Matt Dronfield, the managing director of Debt Free Advice. “In reality, it’s a form of credit—and should be treated with the same caution.”

Debt Free Advice added that BNPL can make things “seem affordable when they’re not,” encouraging impulse buying and overspending.

Indeed, one piece of research found that BNPL users spend 6.42% more than those who do not. Meanwhile, data from the BIT showed that 38% of those surveyed had “spent more than they planned because BNPL was available.”

Debt Free Advice also noted that because BNPL companies all work differently, it’s easy to lose track of what is owed, and consumers can end up borrowing more than they can afford.

In 2024, Finder’s survey found that in the last 12 months, 53% of those who had used BNPL had been charged late fees. 

And because companies often take payments straight from the consumer’s card, if the first try fails, they can try again. This can bring people into their overdrafts or result in insufficient funds for essential bills, said Debt Free Advice.

What regulatory changes are incoming? 

Efforts to regulate BNPL have been in the works for some time, and in July, it was announced that from July 2026, BNPL will be subject to the same protections as other forms of credit. 

Debt Free Advice explained that the new rules will require BNPL firms to review whether consumers can afford payments, while also clearly explaining their terms.

The regulations mean that customers will have faster access to refunds and the right to complain to the Financial Ombudsman to ensure complaints are dealt with fairly. 

“Regulation will help make these services safer and more transparent”

The changes will also reduce what Trevethick called “excessive” marketing at checkout and provide consumers with “additional protections at a time when they are most needed, as cost of living pressures remain.”

Indeed, Debt Free Advice noted that linking BNPL to credit agencies can help “stop people from borrowing too much or harming their credit score without realising.”

That said, it shared concerns about how strong the new rules will be during the changeover, adding that lenders should do more, including by pointing people to free debt help early, before “problems get worse.”

“We’ve seen a sharp increase in clients coming to us with BNPL-related debt. Regulation will help make these services safer and more transparent—but education is still key,” said Dronfield.

How can consumers protect themselves against unmanageable debt? 

With a year until the BNPL regulations come into place, debt charities warn that users need to ensure that they’re using products safely and sustainably. This includes changing the way that consumers approach this kind of credit.

“If you wouldn’t use a credit card for the purchase, reconsider BNPL,” said Debt Free Advice. 

Likewise, it’s important to assess whether BNPL is an affordable option.

“While it’s an interest-free product, if you miss a payment then you can still get struck with late fees, so it is essential to make sure that any BNPL repayments will be affordable before using the product,” said Trevethick. 

Once taking on BNPL, Debt Free Advice said it’s key to track, budget, and plan. This means keeping careful watch of all your BNPL commitments, how much you owe and the due dates for each to “avoid accumulating debt.” 

Keeping to one provider can also help users avoid stacking multiple purchases, the charity said. 

Trevethick echoed this: “At StepChange, we have seen clients with multiple BNPL debts across different providers.”

Debt Free Advice also warned against relying on BNPL for necessities: “It’s a sign you may need debt advice.” 

And, if you’re struggling with repayments, contact a free, impartial debt advice service:

• Debt Free Advice
• StepChange 
• Citizens Advice 
• National Debtline 

 

Tags: BNPL, Buy Now, Loans, Pay Later

A Deep Dive into Leaseholds and Upcoming Reforms

by Madaline Dunn

Leaseholds now account for almost 20% of the UK’s housing stock, and while their numbers have plateaued in recent years, complaints about them have not.

According to figures from the Property Ombudsman (TPO), it received 6,649 complaints about residential leaseholds last year — a 67% year-on-year increase.

Against this backdrop is a wave of reforms, which the government says will “improve the lives of millions of existing leaseholders.” However, the outlook for their implementation remains unclear.

Amidst these upcoming changes, this week at The Salary Calculator, we’ll help break down:

• What is a leasehold?
• How do leasehold charges work?
• What is the Leasehold and Freehold Reform Act 2024?
• What role will a judicial review play in the Act’s implementation?
• What other reforms are ahead?

What is a leasehold?

England’s leasehold system finds its roots in the Middle Ages. Back then, landowners would grant peasants permission to live and work on their land in return for their services or rents. This centuries-old system has evolved over the years, with the Law of Property Act 1925 establishing the foundations of the modern leasehold.

But while many other countries have moved away from this system, leaseholds are now the most common form of flat ownership in England and Wales. London, in particular, has become a hub for this type of ownership structure, with leaseholds accounting for over a third of all homes in the city.

When purchasing a leasehold flat, a tenant enters into a lease agreement with the freeholder to use the property for a fixed term.

Unlike freeholders, leaseholders do not own the building they live in or the land on which it is built.

Occupants are also required to comply with the restrictions detailed in their lease agreement.

Leasehold terms vary, but typically span either 99, 125 or 999 years.

When selling a property, the lease does not reset; instead, it is passed on to the next buyer, with the lease length reducing each year. If the lease ends without an extension, the land and property return to the freeholder.

Shared ownership is a type of leasehold involving the purchase of a share in a home. The shared owner pays the mortgage on their share and rent on the remainder, with the option to increase the share they own over time, a process known as staircasing.

There are around 250,000 shared ownership properties in England, according to the BBC. 

How do leasehold charges work?

One of the fees associated with leaseholds is an annual service charge, which is paid to the freeholder. These fees are intended to cover communal repairs and maintenance, whether that’s the lighting in communal areas or fixing a lift.

Ground rent, on the other hand, is a fee paid to the freeholder for the right to occupy the land on which the property is built. The freeholder does not provide a service in return for this fee.

As of 30 June 2022, ground rents on new residential leases were effectively banned — although this doesn’t apply to those with existing leases.

In recent years, controversies surrounding these charges have hit the headlines, with reports of leaseholders facing spiralling service charges and ground rents.

“Service charges keep rising whilst services disappear — and in some cases, have never appeared at all”

According to an analysis by estate agent Hamptons, last year saw record annual increases for service charges in England. In fact, the average annual service charge exceeded £2,000 in every region for the first time. The analysis also showed that for more than half of leaseholders, service charges outstripped their council tax payments.

Elsewhere, The Property Institute’s (TPI) 2024 Service Charge Index found that since 2019, service charges were up 41%, compared with a cumulative inflation rate of 23% over the same period.

Ben Jenkins, a housing campaigner with a shared ownership property, has experienced these rising costs firsthand.

“It was sold to us as a route to stability, but the reality has been very different,” explained Jenkins, who said that it has become “unaffordable, unjust, and unsafe.”

“Service charges keep rising whilst services disappear — and in some cases, have never appeared at all. Our building falls into disrepair, and many are too afraid to withhold payment because of the very real threat of eviction. That’s not ownership. That’s tenancy in disguise,” added Jenkins.

For Jenkins, who described the current system as “fundamentally broken,” the most important change he wants to see is “proper oversight.”

“When things go wrong, there’s no meaningful way to hold landlords accountable. That has to change,” added Jenkins.

Indeed, in a recent report, the London Assembly Housing Committee found that in the capital city, affordability and transparency are key issues within shared ownership and leaseholds more broadly.

The survey revealed respondents paid a median average of £3,912 per year on service charges.

For one in 10, this shot up to over £7,000 a year.

Sem Moema AM, former Chair of the London Assembly Housing Committee, said that often Londoners have “no clear idea of what they are receiving in return for their money.”

What is the Leasehold and Freehold Reform Act 2024?

The government framed the Leasehold and Freehold Reform Act 2024 as a tool to address these affordability and transparency issues.

Receiving Royal Assent in May 2024, the Act outlined various changes, including plans to make it “cheaper and easier” for leaseholders to extend their lease or purchase their freehold, as well as increased transparency around service charges, with the right to request information about them.

“The intention is to swing the pendulum of power away from freeholders”

The Act also removes the ownership condition, making leaseholders immediately eligible to extend their leases.

“The overall intention of it is clearly to swing the pendulum of power away from freeholders and take it more to leaseholders,” said Jill Carey, partner at Freeths, who explained that one of the biggest financial implications of the legislation is the removal of marriage value.

Marriage value refers to the increase in a property’s market value when a leaseholder extends their lease. Under the current legislation, when extending a lease shorter than 80 years, half of this must be paid to the freeholder.

“For leaseholders whose leases are already below 80 years, the impact will be to make extensions cheaper, as it will be removing a third of the calculation of the sum that they have to pay,” Carey said.

However, for leaseholders whose leases have more than 80 years left to run, it’s not so clear-cut, and could even increase the cost, she explained.

According to the government’s Leasehold Advisory Service (LAS), the reforms will be implemented in stages, requiring further consultation and, in some places, secondary legislation.

The government has now launched its consultation on the legislation, which will run until 26 September 2025.

But, leaseholders eyeing the lease extension reforms could be waiting until 2026 to see the changes rolled out, the LAS said.

For those navigating leasehold extensions within the current system, Carey said: “The most important thing is to stay informed and to take expert advice to ensure that you keep yourself in the best position, as it is a changing area.”

Carey noted that, in particular, tenants should be aware of their ground rent charges, as the new statute will cap this at 0.1% of property value.

“This could affect decision-making for anyone who is calculating the cost of extending their lease or buying their freehold,” she said.

“Leaseholders of flats may also want to consider consulting with their fellow tenants on issues such as enfranchisement. However, there are some parts of the law that are yet to be refined, and there is an ongoing [judicial review] by a group of large landlords, and so it may be that some things change before implementation,” added Carey.

What role will a judicial review play in the Act’s implementation?

Indeed, a group of seven freeholders — among them the Grosvenor and Cadogan Estates — were granted permission for a judicial review back in January. In their legal challenge, the freeholders argue that the Act is incompatible with the right to ‘peaceful enjoyment’ of property under the Human Rights Act 1988.

Freeths’ Carey explained that while the court doesn’t have the power to overturn the Act, the aim is to put pressure on the government to “undo it”

“We’ve just seen this happen with that on private school fees,” said Carey. “There, the challenge was lost, but had it gone through, had they won it, the government would then have found itself in a situation where it had a declaration from the court that its law was incompatible with human rights, and that’s what they’re going for here.”

“This could be a very protracted process”

Linz Darlington, the director of leasehold extension specialists Homehold, explained that even if the freeholders lose at the High Court, there are various avenues through which they can appeal.

Further, Darlington highlighted what he called an “intersection” between the legislation’s complexity and contentiousness, whereby each time issues are resolved within the legislation, fresh legal challenges could arise from the freehold community.

“This could be a very protracted process,” he added.

The freeholders’ judicial review will be heard from 15-18 July.

What other reforms are ahead?

While the Leasehold and Freehold Reform Act moves forward slowly, the government is simultaneously working on additional legislation in the form of the Leasehold and Commonhold Reform Bill.

Commonhold is a type of ownership in which homeowners own their property outright without a lease. Homeowners and other unit owners in a building all own and are responsible for the shared parts of the property. The directors of the association also have the option to appoint an external managing agent to manage the commonhold.

Commonholds afford homeowners more control, with zero ground rent, greater service charge transparency and no risk of forfeiture.

This type of ownership was introduced back in 2004 through the Commonhold and Leasehold Reform Act. But, since then, uptake has been low. There are only around 20 commonhold developments across England and Wales today.

In March, the government published its Commonhold White Paper, the first step in its plan to make commonhold the “default tenure.”

The proposed “ban” on leaseholds would only apply to new flats.

“In theory, this is a great idea,” said Darlington, who explained that the ownership model allows homeowners to buy into a democracy.

However, it’s not without its challenges.

Darlington explained that while the commonhold reforms are likely to apply to new blocks, making them less contentious, it will require different parties — including managing agents, conveyancers, and mortgage companies — to learn and adapt.

“None of this is insurmountable, but it is quite complex,” said Darlington.

Meanwhile, on the homeowner side of things, Carey said challenges can arise in getting everyone within a shared freehold engaged and in agreement.

And while some housing campaign organisations have welcomed the white paper, issues have been raised, including the risk that the legislation could create a two-tier system that leaves existing leaseholders behind.

Katie Kendrick, founder of the National Leasehold Campaign (NLC), argues that commonhold conversion mechanisms are “essential to offer an escape route for those trapped.”

In a statement back in November 2024, Matthew Pennycook, Minister of State for Housing and Planning, said that the government intended to publish a new Draft Leasehold and Commonhold Reform Bill in the second half of 2025.

Tags: Commonhold, Leaseholds

Navigating Money Challenges as Scale of UK Financial Difficulty Revealed 

by Madaline Dunn

New data from the Financial Conduct Authority (FCA) paints a troubling picture of UK finances.

According to a recent survey from the UK’s financial regulatory body, one in 10 have no cash savings, and a further 21% have less than £1,000.

As purse strings tighten and money worries mount, this week at The Salary Calculator, we’ll look at:

• What the findings reveal about the UK’s financial challenges 
• What’s driving these challenges
• Tips for navigating financial crisis
• The role employers play in supporting financial difficulties
• Proposed changes to provide support

What do the findings reveal about the UK’s financial challenges?

The FCA first started collecting data on the UK’s financial circumstances back in 2017, with its latest report presenting the body’s fourth snapshot. 

Having gathered responses from nearly 18,000 people, the survey provides a comprehensive profile of UK finances.

First, the good news.

Digital exclusion is down to 2% from 14% in 2017, and the number of people using debt advice is up (3.2% in 2024 versus 2.7% in 2022), with many finding their debts more manageable after seeking advice (61%). 

However, when it comes to financial resilience, one in four (13.1 million) are struggling, facing low savings, missed bills and heavy debt burdens. 

A total of 4.6 million people are without a financial buffer and say they would be unable to cover their living expenses for up to one week if their main household income source were lost. 

These stats are echoed by data from YouGov in March, which revealed that 56% of Britons said they’d been affected by cost-of-living pressures, with 22% unable to make ends meet and afford essential costs. 

“On the frontline of debt advice, we see every day how a lack of financial resilience pushes people into financial difficulty. Without rainy day savings or access to affordable credit, it can be harder to cope with life events and shocks, like falling ill, splitting up with your partner or losing your job,” commented Grace Brownfield, head of influencing and communications at National Debtline.

And without a parachute, borrowing is on the rise. The use of high-cost credit was up in 2024 (6.4%) from 2022 (5.3%), while 2.8 million (5%) said they had persistent credit card debt. 

The survey also found that more people are using Deferred payment credit (DPC), otherwise known as unregulated Buy Now, Pay Later (BNPL).

In 2024, 20 per cent of adults were found to have used DPC in the last 12 months, and 17% of all DPC users used it frequently. Among the most frequent users were lone parents (40%) and women aged 25-34 (35%).

What’s driving these challenges?

These figures come against a backdrop of rising rent, food prices and energy bills.

Indeed, in April, ONS data found that cost of living ranked as the most important issue facing the UK today. 

The same survey revealed that 72% had seen their cost of living increase in the last month — up from 66% in March — with 92% putting this down to their food shop becoming more expensive and 80% attributing this to higher energy bills. 

And amidst a number of new benefit changes, organisations have raised the alarm that, for some, tougher times could be ahead. 

In April this year, a nationwide freeze on housing benefits came into effect. At the time, national homelessness charity Crisis said the freeze represented a real-terms cut and warned it would push more people “out of the private rented sector and into homelessness.” 

Now, a new poll commissioned by The Salvation Army has revealed that, in the shadow of the freeze, 48% of those surveyed were worried an extra £100 expense would leave them unable to pay their rent or mortgage. 

Tips for navigating financial crisis

These mounting financial struggles are having a knock-on effect on people’s mental health and wellbeing, too. 

According to the FCA data, twenty-two per cent of adults disclosed that they felt overwhelmed and stressed when dealing with financial matters, a statistic which has remained unchanged since 2022. Meanwhile, 40% of those with credit or loans said that they suffer from either anxiety or stress as a result of their financial situation.

Of those suffering from poor mental health — around 9 million adults — 25% said they put off dealing with financial matters, and 18% had fallen into debt as a result of not wanting to deal with their financial situations. 

Alongside this, research from the Money and Mental Health Policy Institute shows that people with problem debt are “significantly more likely to experience mental health problems,” with 46% of those in debt also suffering from a mental health problem. 

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“If you’re struggling with your finances, the best thing to do is seek debt advice”

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“Financial challenges can deeply affect mental health, often leading to anxiety and depression,” said Norma Cassius, a money management consultant and psychotherapist. 

Cassius advised that support from organisations like StepChange and MoneyHelper can provide guidance and a “safe space to share struggles,” while highlighting the importance of creating a realistic budget, which she said is “easily done” with free budgeting tools in banking apps.

“If you’re struggling with your finances, the best thing to do is seek debt advice,” Brownfield said. “Nine in ten people we helped at National Debtline last year saw their debts reduce or stabilise, while three in four reported a positive impact on their emotional or mental health.”

But despite the benefits, the FCA survey found that embarrassment can be a barrier to accessing help. 

“It’s crucial to break the stigma around seeking debt advice, especially during the current cost-of-living crisis affecting us all. By fostering open conversations and sharing recovery stories, we can inspire hope and encourage others to seek the help they need,” said Cassius. 

What role do employers play in supporting financial wellbeing? 

According to experts, employers also play a central role in supporting financial wellbeing. 

“As the main income provider, they’re uniquely placed to offer practical financial wellbeing support, from access to affordable loans and guidance to helping people build confidence through simple steps like creating a spending plan or managing debt,” said Abby Birch, financial wellbeing and money expert at My Money Explained. 

Adding: “Without action, the risks are real: stress, lost productivity, and higher turnover. Supporting financial wellbeing isn’t just a nice-to-have; it’s essential.”

Indeed, the Chartered Institute of Personnel and Development’s (CIPD) 2025 Good Work Index (GWI) revealed the extent to which financial wellbeing and work performance are linked.

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“Supporting financial wellbeing isn’t just a nice-to-have; it’s essential”

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A survey of 5,000 employees revealed that: 

• For 31%, money worries had negatively affected their work performance
• Nineteen per cent had lost sleep due to worrying 
• Fifteen per cent said financial concerns had caused health problems like stress
• Thirteen per cent said their worries made it hard to concentrate or make decisions at work. 

The CIPD outlined that employers can support workers through this by ensuring that pay outcomes and processes are fair, paying workers as much as is affordable, becoming an accredited Living Wage Employer, and creating support mechanisms to reduce the risk of employees falling into financial difficulties. 

Meanwhile, Conor D’Arcy, Head of Research and Policy at the Money and Mental Health Policy Institute, shared with Mind that providing mental health training to line managers can be a helpful tool for recognising when employees are struggling.

Flexible working can also be beneficial, D’Arcy explained: “It means they might have time to access external help, such as visiting a financial advisor. It also might allow parents or those with caring responsibilities to better manage their time to avoid some of the additional costs these responsibilities can bring.”

What proposed changes could help provide support? 

The FCA has also outlined a number of measures aimed at supporting consumers. According to the body, this includes setting “high standards” through the implementation of the Consumer Duty, supporting the government to develop a national plan for financial inclusion, and its InvestSmart campaign, geared towards helping consumers make “better-informed investment decisions.”

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“We need to do more at a national level to prevent financial difficulty occurring”

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Meanwhile, from a policy perspective, new rules are coming into effect next year to bring BNPL in line with other types of credit. According to Emma Reynolds, Economic Secretary to the Treasury, these new rules will protect shoppers from debt traps.

Brownfield told The Salary Calculator that the government’s Help to Save scheme can be useful for building up a small safety net for those who are eligible, but added that more action should be taken at a national level. 

“We need to do more at a national level to prevent financial difficulty occurring. Government must ensure the welfare system provides adequate and effective support when people experience life shocks and make building financial resilience a new national mission,” added Brownfield.

This was echoed by Richard Lane, Chief Client Officer at StepChange Debt Charity, who called for the government to expand the Help to Save scheme and work with employers to expand workplace savings schemes.

“We also want to see the Government invest in safe options for those who can’t afford to save to cope with unexpected costs, including a permanent national crisis support scheme, building on the Household Support Fund and a national no-interest loan scheme, and by working with the financial services industry to expand affordable, low-cost credit.”

Elsewhere, Helen Undy, Chief Executive of the Money and Mental Health Policy Institute, outlined that banks need to make their services accessible and offer people more tools and support to “stay in control of their finances and savings,” from spending controls to carers’ cards. 

Undy added that the organisation also wanted to see the FCA “go further” in making sure firms act on their obligations under the Consumer Duty to deliver better outcomes for customers.

 

Tags: cost of living, debt, Finances, Personal finances

How to Navigate the Council Tax Increase and Lower Your Bill

by Madaline Dunn

Council tax is one of the many household bills that are rising this month. Where you live and your property’s tax band will determine how much you pay. However, this year, few will escape the rise. 

As day-to-day life gets more expensive, Citizens Advice says one in three people are now “living on a financial knife edge,” with arrears on household bills up 25%.

Against this backdrop, this week at The Salary Calculator, we’ll walk you through: 

• How much will council tax increase?
• Why is council tax rising?
• Are you eligible for reductions or exemptions?
• Can you challenge your council tax band? 
• What happens if you don’t pay?
• Where can you find support for council tax debt?
• How to manage your money in the months ahead

How much will council tax increase?

Each year, councils are allowed to increase council tax by up to 4.99% without triggering a local referendum.

In 2025, 88% of authorities have decided to increase council tax by the maximum amount, and six have been granted permission to exceed this threshold by up to 10%: 

• Birmingham (7.49%), 
• Somerset (7.49%), 
• Trafford (7.49%), 
• Newham (8.99%), 
• Windsor and Maidenhead (8.99%)
• Bradford (9.99%).

A property’s council tax band determines the occupant’s tax bill, and in England, this is calculated based on how much the property would have sold for in 1991.

The more expensive a property is, the higher the council tax bill, with A being the lowest and H the highest. 

April is also bringing changes to how second properties are charged. From April, if a property is not a main residence, councils can charge a council tax premium of up to 100% unless it qualifies for exemption. 

Why is council tax rising?

According to a spokesperson for the Local Government Association (LGA), a body which represents councils in England, “severe funding shortages,” alongside “soaring cost and demand pressures on local services,” are the driving forces behind the hike. That said, the LGA noted that council tax increases alone won’t keep local services afloat. 

Indeed, in March, the County Councils Network (CCN), which represents England’s biggest councils, warned that without action in the next 12 months, rising SEND services costs could “trigger a wave of bankruptcies”. 

Already, a total of six councils have declared bankruptcy since 2021, including Birmingham City Council, which folded in 2023 following an equal pay dispute and a botched IT system. 

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“7 million people in the UK are behind on at least one household bill”

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Accusations of mismanagement have also been levelled against some councils, with “speculative” investments behind others’ cash flow issues.

In a statement to parliament in February, Secretary of State Angela Rayner said: “We recognise the importance of limited increases in helping to prevent these councils falling further into financial distress – but we have been clear this must be balanced with the interests of taxpayers.”

However, research shows that many taxpayers are already struggling to make ends meet. 

“We know that currently, household budgets are incredibly stretched – our latest research found that 7 million people in the UK are behind on at least one household bill, including council tax,” said Grace Brownfield, Head of Influencing and Communications at the Money Advice Trust, the charity that runs National Debtline, adding that there is “little sign of respite for many across the country.”

Are you eligible for reductions or exemptions?

That said, if you are on a low income or claiming certain benefits, you could be entitled to a Council Tax Reduction.

Eligibility depends on a number of factors, including individual circumstances and where a person lives, as each council has its own scheme.  

Some individuals are also eligible for council tax exemption. You can read more about the exemption process and who qualifies here. 

Likewise, if you’re the only person in your home over the age of 18, you’re entitled to a 25% council tax discount. 

Can you challenge your council tax band? 

With the last valuation in England taking place in 1991 (2003 in Wales and 2005 in Northern Ireland), many properties are believed to be in the wrong tax band. 

You can challenge your band if you believe this is the case or if changes have been made to your property, its use, or the local area. 

That said, it’s important to note that your band can either go up or down. 

There are a number of checks that you should carry out before challenging your band. This includes checking your neighbours’ band and your home’s value with a valuation calculator. 

According to the government’s Valuation Office Agency (VOA), between April 2023 and March 2024, 27% of those who challenged their council tax band were successful in securing a reduction. 

What happens if you don’t pay?

Missing a council tax payment means that you’re in arrears, and amidst rising costs, more and more people are finding themselves in this situation. 

In June 2024, figures from the Ministry of Housing, Communities, and Local Government revealed that outstanding council tax arrears reached £6 billion. That’s a 9% year-on-year rise and a 71% increase since before the pandemic, according to debt charity StepChange. 

If you miss a payment, the council will send a reminder, giving you seven days to pay, but if this bill isn’t paid within the seven-day window, you’ll no longer be able to pay council tax in instalments. 

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“If you are facing financial difficulty, the best time to seek support is now”

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Councils only send two reminders in a year, so if you’re late on a third payment, you’ll be sent a final notice requesting payment for the whole tax year.

After this, if you don’t pay, you’ll be sent a summons, incurring an additional fee, and this may require you to appear before the Magistrates Court. 

Failure to pay or explain why you’re not liable following this could result in the council applying for a Liability Order — this grants a council legal power to recover your debt. If granted, this will add an additional charge to your bill, and the council will be able to take a number of different actions to recover the debt. 

This can include deductions from wages and benefits, passing the debt to Enforcement Agents (bailiffs), making an application for bankruptcy or liquidation, and applying for a charge on your home.

In July, a BBC investigation found that bailiff referrals have risen by nearly 20%. The process has been the subject of much criticism over the years due to both poor practices on the part of bailiffs and the mental health impact on individuals. 

The most extreme action taken against council tax non-payment is an application to the court for a prison sentence of up to three months. 

England is now the only part of the UK that has retained the imprisonment sanction for unpaid council tax.

Where can you find support for council tax debt?

Indeed, as a priority debt, council tax comes above other household bills and carries significant risks if you fall behind on payments, meaning it’s important to address arrears head-on. 

“If you are facing financial difficulty, the best time to seek support is now. You can contact your local authority if you are struggling and ask them to agree to a payment plan,” explained Emily Whitford, Senior Public Policy Advocate at StepChange. 

“An independent, free and impartial debt advice charity like StepChange can also assess your income and expenditure and assess where savings can be made to pay towards debts. In some cases, a debt solution may be necessary to address your financial difficulty,” she added.

Brownfield echoed this, noting that while worrying about debts and wondering how to tackle them can feel “overwhelming,” it doesn’t need to be. 

“There is a wealth of support out there to help,” said Brownfield, adding that speaking to a free debt advice service, like National Debtline, is a “great first step.”

“You can call, webchat or get advice online. Talking to our experts can help you understand the best option for you and alleviate debt-related stress,” added Brownfield. 

Brownfield noted that services like National Debtline — or Business Debtline if you are self-employed — provide free, expert, impartial advice to help people deal with their debts. 

Head over to StepChange and Citizens Advice for more information about accessing support. 

How to manage your money in the months ahead

While council tax exemptions, reductions and refunds will go some of the way to help with rising costs, there are additional steps you can take to manage your money in the months ahead. 

Getting a clear picture of your finances is a good starting point. According to Brownfield, this begins with opening all of your statements. 

“It can be extremely tempting to ignore the envelopes or emails but resist the urge to leave them alone. Take a deep breath, open all of your statements and get a handle on how much you owe. Make a list of all your debts, including the outstanding balances and repayment dates,” she said. 

Brownfield also highlighted the importance of speaking to your creditors, noting that they will have a range of options to help you, depending on your situation. “While it can seem daunting, talking to your creditors or utility providers, if you’re struggling to pay your bills, is a really important step.”

“The National Debtline has template letters and emails you can use to get in touch with your creditors and explain your situation,” added Brownfield. 

Budgeting and expense tracking are also tools that can help you identify your spending habits and pinpoint any areas where you can cut back. 

“Working out how much you have coming in every month and what you need to spend on essential costs is often the single biggest step you can take,” said Brownfield, adding that the National Debtline’s My Money Steps tool can help guide you through this process.   

Finally, check whether you’re eligible for extra support. Last year, a report from social policy software and analytics company Policy in Practice (PIP) found that £23 billion of support is unclaimed each year, meaning you could be entitled to claim benefits. Brownfield noted that you can check what you are entitled to using the Turn2Us online benefits calculator.

Tags: council tax, council tax bands

How is Employer NI Changing and Will it Affect You?

by Madaline Dunn

April’s hotly-debated Employer National Insurance (NI) rise is fast approaching. A big ticket item in the Autumn Budget, the increase has been met with unease by some, concerned it will tighten purse strings, cut jobs and raise prices. But while change is incoming, it’s not all doom and gloom. 

If you’re wondering what this means for you, The Salary Calculator is here to clear up the confusion. This week, we’ll be answering: 

• How is Employer NI changing?
• Why are Employer NI rates increasing?
• What do the changes mean for businesses?
• How will the changes affect you?

How is Employer NI changing?

Back in October, Chancellor Rachel Reeves announced that in the new financial year Employer National Insurance — a tax employers pay on top of employee wages — will be increasing from 13.8% to 15%. 

The Autumn Budget also delivered news that the threshold at which employers pay NICs on employees’ earnings will decrease from £9,100 a year to £5,000. 

However, alongside this, Employment Allowance — which allows employers to reduce their annual National Insurance liability — will increase from £5,000 to £10,500, and the £100,000 eligibility cap will be removed, meaning more employers will qualify. 

The changes to Employment Allowance, Reeves said, will help “protect” the smallest companies. 

“This means that 865,000 employers will not pay any national insurance at all next year, and over 1 million will pay the same or less than they did previously,” the Chancellor explained.

These changes will be effective from 6 April 2025.

It hasn’t all been plain sailing, though. Peers in the House of Lords (HoL) voted to exempt care providers, charities, and small businesses from the rise, resulting in ‘ping pong’ between the two chambers. That said, the HoL amendments are “likely to be overturned” in the House of Commons (HoC), according to the Chartered Institute of Taxation (CIOT).

Why are Employer NI rates increasing?

According to Reeves, the changes to Employer NI aim to raise revenues to fund public services and “restore economic stability.”

Indeed, the Budget committed to providing an additional £22.6bn for the Department of Health and Social Care (DHSC) across the next two years and a £3.1bn increase in the capital budget.

Reeves called this a “record injection of funding” and the “largest real-terms growth in day-to-day NHS spending outside of Covid since 2010.”

The Employer NI increase, expected to raise £25bn, is part of a larger £40bn in tax rises. However, according to 2023 projections from the Centre for Progressive Policy (CPP), far more is required to keep public services afloat. The CPP estimates that the government will need to find an additional £142bn per year by 2030 “just to maintain current levels of public services.”

What do the changes mean for businesses?

The incoming changes mean some companies are facing higher costs. When assessing the effects of the government’s new policy measures, the Office for Budget Responsibility (OBR) said the NIC rise will increase employer payroll costs by just under 2%.

But it’s important to note that the bill footed by employers will vary depending on how much workers earn.

According to the Institute for Fiscal Studies (IFS), for each median earner (£33,000), employers are facing an additional £900. Meanwhile, for a full-time minimum wage worker (£22,000), the increase will look more like £770. 

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“SMEs, in particular, will bear the brunt of this additional tax burden”

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“Whilst smaller employers might not feel the impact due to the rise in the employment allowance, SMEs, in particular, will bear the brunt of this additional tax burden,” said Emily Gaffney, Freeths Taxation Senior Associate, in a statement to The Salary Calculator.

This is echoed in new findings from iwoca, revealing that 66% of SME leaders estimate the rise will “cost them each over £10,000.”

How will the changes affect you?

Although the NIC rise won’t directly affect take-home pay, some businesses will be looking to find ways to offset the increase, which, in some cases, could impact workers and consumers. 

Indeed, in October, the CIOT warned that the changes to Employers NI could have “unforeseen consequences,” including businesses seeking “alternative arrangements to taking on people as employees.”

“Alternatives could include outsourcing or offshoring services and reducing the numbers of employees,” said Eleanor Meredith, Chair of CIOT’s Employment Taxes Committee.

The Chartered Institute of Personnel and Development (CIPD) reported that this is a move that 32% of the 2,000 firms it recently surveyed plan to make, with companies reducing headcount through “redundancies or recruiting fewer workers.”

Likewise, the National Insurance Pulse Survey by Towers Watson, which spoke to over 200 respondents from various industries, found that 28% are looking to make workforce cuts, and 33% have reduced planned salary increases.

The IFS has claimed that “just £16bn” will be raised from the Employer NI increase due to this impact on wages.

Reflecting on the situation, Gemma Alicia Long, HR Consultant and Director of HR & Co, said that small businesses are having to make “difficult decisions” to mitigate the increase in NI costs and safeguard their businesses.

“For some, this may result in job losses,” said Long. 

These cascading impacts have led to some questioning whether the increase breaks the government’s pledge to “not increase taxes on working people.”

“The Labour party assured voters during the 2024 general election that there would be no tax increases on ‘working people’. From an economic perspective, there is a risk that an increase in employer national insurance, combined with the rise in the National Minimum Wage for young adults, becomes effectively that – a tax increase borne by working people,” said Gaffney. 

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“Many companies plan to pass on the additional costs to consumers due to the increased operational costs”

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In hospitality, among the industries set to feel the biggest shock, trade bodies have warned that the changes will cost £1bn by bringing 774,000 into the eligible threshold. According to UKHospitality, in January, businesses were already making decisions to cut investment and jobs, freeze recruitment, and reduce hours.

Elsewhere, a survey of 52 leading retailers by the British Retail Consortium found that 56% plan to reduce ‘number of hours/overtime’ and 46% plan to cut back on ‘stores headcount’.

That said, according to the Trades Union Congress (TUC), employers are “more likely to absorb the increased contributions than shift the burden to their staff.”

Firms are also exploring price adjustments. “Many companies plan to pass on the additional costs to consumers due to the increased operational costs,” said Long. 

Indeed, data from the Office for National Statistics revealed that in late February, 49% of businesses with 10 plus employees shared their intentions to increase prices in response to future rises in employment costs. 

With the NIC changes right around the corner, Long notes that businesses will be looking to prioritise operational efficiency.

“Businesses are exploring cost-saving measures such as outsourcing and automation to maintain profitability without compromising service quality,” she said. 

Financial planning is also key. “Small businesses are revising their budgets and financial forecasts to accommodate the higher NI contributions, ensuring they maintain healthy cash flow and profitability,” said Long. 

However, as businesses seek to reduce costs with outsourcing, it’s key that employers are mindful of ‘false self-employment,’ something the CIOT has warned against. 

“We are concerned that the increase in employers’ NI could lead to an increase in ‘false self-employment’, where businesses trying to save money turn to arrangements where the worker is not directly employed by them, without necessarily appreciating the rules and risks of such arrangements,” said the CIOT’s Eleanor Meredith in October. Such arrangements can have consequences for both employers and employees. 

Another option for employers looking to minimise impact is salary sacrifice arrangements. A government-backed scheme, these arrangements reduce entitlement to cash pay in return for a non-cash benefit, which, in turn, can help save on NICs. Salary sacrifice arrangements come in many forms, including pension contributions, bike-to-work schemes and car schemes. For more insight into other avenues employers might explore to mitigate the NI rise, head here. 

Ultimately, with no rule book instructing employers on which option to choose, the impact of the rise will play out differently from business to business. But, for workers concerned about the consequences, the TUC advises that the National Living Wage and the Employment Rights Bill will provide “important protections.”

 

Tags: Autumn budget, Employer National Insurance, national insurance