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The potential 2022 recession and how it might affect personal finances

by Madaline Dunn

With slow growth following the pandemic and the skyrocketing cost of living, experts have warned that the UK could be heading towards a summer recession. According to research, consumer confidence is now at its lowest in years, even lower than the 2008 financial crisis. This near-record low is indicative of an economic downturn. It’s not just the UK that’s headed for trouble, either, there is a cloud forming around the global economy.

With so much instability and uncertainty across the UK, it’s understandable that many will be concerned about this news, and at The Salary Calculator, we’ll walk you through:

• What the economy is looking like right now
• How a potential recession could affect personal finances
• How you can safeguard yourself against a potential recession

Is there a recession ahead?

A recession, by definition, occurs when negative economic growth takes place across two successive quarters. According to financial forecasts, the economy is likely to shrink by 0.2% between April and June. Recently, the pound also hit its lowest level against the dollar since September 2020.

So, while it’s not imminent, experts say the risk of a recession is rising. Early this month, Deutsche Bank’s chief UK economist Sanjay Raja said: “We continue to think that the risk of recession remains on the rise,” adding: “This is something we will be tracking very closely in the coming months. Consumer confidence data is already consistent with recessionary levels.”

Commenting on the financial forecasts by the industry, Abena Oppong-Asare, shadow exchequer secretary to the Treasury, said that while the figures are “concerning,” they come as “no surprise,” referring to what she called the “double whammy” of the National Insurance increase alongside soaring energy bills.

She added: “Collapsing consumer confidence shows how the cost of living crisis is weighing down growth. How many warnings like this does the chancellor need to grasp the seriousness of the cost of living crisis?”

How might a recession affect you and your personal finances?

Recessions can have a hugely devastating impact on personal finances. Businesses, especially small businesses, typically take a big hit when a recession swoops in. This can result in companies pursuing redundancies, cutting jobs, and pausing new hires. Of course, this can have a knock-on effect on employees. Back in the 2008 recession, unemployment reached its highest rate since 1995 at 8.4%.

Of course, job losses can lead to subsequent financial difficulties, for example, challenges paying bills, mortgages, and rent payments, which can lead to individuals taking on debt to cope. Alongside this, recessions often lead to ​​reduced economic output and consumer spending falls, too.

How can you safeguard yourself against a potential recession?

With so much discussion around the state of the economy, and lots of undeniably concerning headlines, it’s likely that many are worried about what might happen to their personal finances, and will be seeking to find ways to safeguard themselves. However, it’s important not to panic, and note that there are steps you can take to protect yourself and your savings.

With increasing taxes, record inflation, and soaring living costs in the current financial climate, it may be difficult to put some money away and save. Experts, however, recommend that in the midst of a recession, people should try to build up some kind of emergency fund. Typically, common sage advice is to build an emergency fund equivalent to six months’ worth of expenses. This can be done through small contributions, and you can even set up automatic payments to inject money into your emergency fund consistently.

Another way to protect yourself in the face of a potential recession is to cut back on your expenses. Take a look at your overall lifestyle and see if you’re overspending money, or if there’s a subscription you wouldn’t miss and could cut out. Douglas Boneparth, president of Bone Fide Wealth and a member of the CNBC Digital Financial Advisor Council, says it’s a good idea to take stock of your whole life, too. He recommends individuals ask themselves the important questions: “How do you feel about your job? Do you feel safe? What is the risk in your life right now? Did you just have a child? … Are you in good health?” After taking time to reflect on one’s outgoings, creating a reasonable budget is much more doable, and it can also make clearing your personal debt a bit easier.

Some experts advise diversifying and drip-feeding investments. Gold is a go-to for some. According to Adrian Lowry, writing in The Independent, gold has been “lauded variously as a hedge against inflation, a counterpoint to a weakening US dollar, a safe haven in times of crisis, and something to hold in portfolios that are not correlated to equities, as a diversification asset.” That said, it’s also important to be aware that gold is fairly volatile and can be subject to significant price fluctuations, meaning that it can dramatically drop in value as well as increase.

On the other hand, Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, recommends that people do not shy away from investment, but if worried about investing their savings in one place, they should drip-feed investments instead. She explained that this enables you to “benefit from pound-cost averaging by continually adding to your investments through different market conditions and economic cycles.” Investment Strategist Whitney Sweeney at ​​Schroders also says that diversification “is key.”

 

Tags: 2022, investment, Personal finance, recession, savings, the economy

Cryptocurrency: how to report and pay the right amount of tax

by Admin

Article by GoSimpleTax

In October 2021, HMRC was reportedly planning to send out “nudge letters” to holders of cryptocurrency (also called cryptoassets or just crypto), reminding them to check that they were reporting correctly and paying the required amount of tax.

Obviously, HMRC wants to prevent tax underpayment by the 2.3m people in the UK now believed to have crypto holdings. You may be among them and want to be sure that you’re reporting properly and paying the right amount of tax. Or you could be thinking about investing in cryptocurrency and want to know what your obligations would be regarding reporting and paying tax.

This guide explains:

• What cryptoassets and cryptocurrency are.
• When cryptocurrency is subject to Capital Gains Tax.
• When cryptocurrency is subject to Income Tax.
• What records you need to keep for tax purposes.
• How to report crypto gains or income.

What are cryptoassets/cryptocurrency?

HMRC defines cryptocurrency/cryptoassets as: “Cryptographically secured digital representations of value or contractual rights that can be transferred, stored and traded electronically.”

Chances are you’ve heard of Bitcoin, the world’s best-known and most widely held cryptocurrency. More than 60% of UK cryptocurrency investors have Bitcoin holdings, but other examples include Ether, Litecoin and Ripple.

Cryptocurrencies are digital assets, they’re not physical currency. You can’t buy things in the shops with them and they have no inherent value, they’re worth whatever someone is willing to pay for them. A cryptotoken is a denomination of a particular cryptocurrency and they each have different values. As with other assets, cryptocurrency value can go up or down.

Cryptocurrency is bought and sold via secure peer-to-peer online networks or exchanges. According to HMRC, the tax treatment of cryptocurrency depends on its nature and use. Basically, if you’re given crypto or earn income from crypto trading, it can be subject to Income Tax. If you dispose of crypto by selling, exchanging or giving it away, it can be subject to Capital Gains Tax.

When is cryptocurrency subject to Capital Gains Tax?

Obviously, people invest in cryptocurrency hoping that its value will increase over time. If it does, you make a gain, that’s why Capital Gains Tax can be payable if you dispose of cryptocurrency tokens by:

• selling them
• exchanging them for other cryptoassets
• using them to pay for good or services
• giving them away (unless it’s to your spouse or partner) or
• donating them to charity.

Your gain is the difference between how much you bought the crypto for (including any transaction fees) and sold it for. If someone gives you cryptocurrency tokens upon which you later need to pay tax, to work out your gain, you must find out their market value when they became yours.

How much Capital Gains Tax is payable on cryptocurrency?

After your total taxable gains go over the Capital Gains Tax tax-free allowance threshold – £12,300 for the 2021-22 tax year – you’ll be taxed as follows:

• If you’re a basic rate Income Tax payer (ie with taxable earnings of £12,571-£50,270 a year) you’ll pay Capital Gains Tax of 10%, then  20% on gains that take you above £50,270 in taxable earnings.
• If you’re a higher or additional rate Income Tax payer (ie with taxable earnings of more than £50,270 a year) you’ll pay 20% CGT on your crypto gains over and above the CGT threshold.

To find out whether Capital Gains Tax is payable after selling cryptocurrency, you need to calculate your gain for each transaction.

Some allowable expenses are deductable for Capital Gains Tax, including (according to HMRC):

• “transaction fees paid before the transaction is added to a blockchain”
• “advertising for a buyer or seller”
• “drawing up a contract for the transaction”
• “making a valuation so you can work out your gain for that transaction”
• “a proportion of the pooled cost of your tokens when working out your gain”.

Need to know!

• Capital Gains Tax is obviously not due on crypto losses, but you can use these to reduce other crypto gains and any tax liability, providing you first report them to HMRC. Losses aren’t capped.

How to report and pay Capital Gains Tax on cryptocurrency

To report and pay Capital Gains Tax on cryptocurrency you can either complete a Self Assessment tax return following the end of the tax year or use the real-time Capital Gains Tax service to report and pay straight away.

You must keep separate records for each cryptocurrency transaction detailing:

• token type
• disposal date
• number of tokens disposed of
• tokens remaining
• value of the tokens in pound sterling
• bank statements and wallet addresses
• pooled costs before and after you disposed of them.

Need to know!

• HMRC can ask to inspect your cryptocurrency records if it decides to carry out a compliance

When is Income Tax rather than CGT payable on cryptocurrency?

Income Tax and National Insurance contributions (NICs) can be payable on cryptocurrency if your employer gives you them as a non-cash bonus or benefit (this could apply to those who mix employment with self-employment). If you need to pay Income Tax on income from crypto for this or other reasons, you’ll need to register for Self Assessment, if you’re not already registered.

If you occasionally dabble in crypto, you’ll probably only have to pay Capital Gains Tax on disposal. However, if you trade regularly, HMRC will consider you to be a crypto trader and you’ll need to report your income via Self Assessment and pay any Income Tax and National Insurance that’s due.

If you’ve paid Income Tax on crypto, Capital Gains Tax isn’t payable unless you later dispose of your tokens, when CGT will be due on the gain made since you reported for Income Tax.

Many cryptoassets are traded on exchanges that don’t use pounds sterling. If so, the value of any gain or loss must be converted into pounds sterling when you’re completing your Self-Assessment tax return. You’ll need to use supplementary page SA108 to detail crypto capital gains/income and losses claimed within your SA100 tax return.

Need to know!

• Fail to report cryptocurrency gains or income to HMRC and it can lead to penalties, while you’ll still have to pay tax you owe plus interest.

More information

Visit government website GOV.uk to download HMRC’s Cryptoassets Manual. It sets out the tax rules for both individuals and businesses that invest in cryptocurrency.

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Tags: capital gains, capital gains tax, cryptocurrency, investment, savings

The gender pension gap

by Madaline Dunn

While many are all too familiar with the gender pay gap, the gender pension gap gets a lot less coverage but is, unfortunately, a reality for many women. Now, warnings are being issued around the gap, with many calling on the government to do more as women live longer with smaller pensions.

At The Salary Calculator, we’ll walk you through and explain:

• What the gender pension gap is
• How the gap has widened
• How to navigate the gender pension gap

What is the gender pension gap?

The gender pension gap refers to the percentage difference in pension income between female and male pensioners. According to research from Legal & General, the gap is 17% at the beginning of a woman’s career, reaching 56% at retirement when compared to men.

Moreover, the average pension pot of a woman is less than half that of a man’s, and the gap even penetrates female-dominated industries.

Research from Prospect outlines that some of the reasons behind the gender pension gap include:

• An imbalance in the level of occupational and private pension saving between men and women
• The gender pay gap
• Indirect gender discrimination
• Women taking breaks or reducing hours to look after family

This imbalance, of women having to work 14.5 more years to access the same pension savings as men, occurs despite women contributing more of their income to pension savings.

Research from SunLife’s survey also found 30% of women hope to depend on their partner’s pension when they get older. However, this doesn’t take into account potential separation, divorce or early widowhood. On top of that, when it comes to divorce, research shows that three in five divorcees fail to bring up pensions when discussing their financial settlement.

Commenting on the inequality relating to pensions, Juan Yermo, Chief of Staff to the OECD Secretary-General, said: “Still today, the design of retirement savings arrangements sometimes disadvantages women compared to men, for example when eligibility criteria based on working hours or earnings restrict plan access, when contributions stop during periods of maternity leave, or when women do not get their share of retirement benefit entitlements upon divorce.”

How has the pension gender gap widened?

The pandemic has, unfortunately, worsened an already dire situation. Research from More2Life and the Centre for Economics and Business Research outlined that during the pandemic, the gap widened to £184,000 in 2021. That was £26,000 more than the previous year.

The study also found that 30% of women had found their financial situation worsened, impacting their ability to save; comparatively, 24% of men agreed.

More2Life said that the research revealed 62% of women worried about being able to “pay enough into their pension” compared to 57% of men.

How to plug the pension gap

Many pension experts and organisations are calling for government intervention to plug the pension gap.

Some of the recommendations made by Prospect include:

• Introducing a statutory requirement for the government to report to Parliament on the gap and outline plans for closing it
• Commencing an inquiry by the Work and Pensions Committee into the gender pension gap
• Implementing changes to the tax system to address and resolve the ‘net pay anomaly’, which means low earners “do not benefit from tax relief on their contributions.”

While these recommendations, if implemented, could be fruitful, change isn’t going to happen any time soon, and in the meantime, there are ways that you can safeguard your future.

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, outlined there are steps that women can take: “It’s not too late to make a difference to your pension value by continuing to contribute after the age of 55. You should also check with your employer to see if they will match any further contributions as this can give your retirement planning a real boost.”

It’s a good idea to check in on your National Insurance contributions and review whether there are any gaps to ensure you’re eligible for the full state pension. Also, plan ahead of time, and if possible, pay into your pension if you take maternity leave.

If you’re planning on taking a career break for another reason, it’s wise to top up your pension, too, as a way of compensating for any losses.

Ultimately, saving as soon as possible is a wise plan because even if you contribute a small amount to your pension each year, you can make full use of compound interest.

Tags: 2021, Employed and Self Employed, gender pension gap, income, pension, savings

How the budget will affect personal finance

by Madaline Dunn

Chancellor Rishi Sunak recently delivered his “wide-ranging” 2021 Budget, and personal finances will be affected in a number of ways. From the national minimum wage to the price of a pint, millions will see changes to the amount of money in their pockets.

So just what is changing? At The Salary Calculator, we’ll give you the rundown. In this article, we’ll explain:

• What changes are being made to the National Minimum Wage and the Living Wage
• How much money will those who claim Universal Credit take home
• What’s going on with alcohol duty
• How travel costs will change

National Minimum Wage and Living Wage changes

The UK’s National Minimum and Living Wage are set to rise, and these changes will come into effect in the next tax year, in April 2022.

The National Living Wage, which refers to the minimum wage those aged 23 and over can earn an hour, will increase by 6.6% from £8.91 to £9.50 an hour. The National Minimum Wage, meanwhile, will increase from £4.62 to £4.81 for those under the age of 18, and from £6.56 to £6.83 for those aged 18 to 20.

Those aged between 20 and 21 will also benefit from a slight increase, with hourly wages rising from £8.36 to £9.18.

Those working as apprentices will see a small increase in their take-home pay, too, with hourly pay increasing from £4.30 to £4.81.

Although Sunak has said that this increase “ensures “the government is “making work pay” and “keeps us on track to meet our target to end low pay by the end of this parliament.” That said, if you think that this wage increase isn’t enough, you’re not alone.

Bridget Phillipson, the shadow chief secretary to the Treasury, has said that the increase is “underwhelming” and, in fact, works out as “£1,000 a year less than Labour’s existing plans for a minimum wage of at least £10 per hour for people working full-time.”

Adding: “Much of it will be swallowed up by the government’s tax rises, universal credit cuts and failure to get a grip on energy bills.”

Similar sentiments have been expressed by the Institute for Fiscal Studies, which has said that the increase won’t be truly felt due to inflation.

Universal credit take home

Following the government’s cut to the Universal Credit boost, which benefited 5.5 million people, Sunak announced there will be changes to the amount of money claimants take home.

Under the current taper rate, for every £1 earned above a threshold for the benefit, a worker misses out on 63p. This is being cut by 8%, meaning it now rests at 55%, down from 63%.

So, according to the government, that means that Universal Credit claimants will keep more of their payment when they find work or receive an increase in their hours. That said, this change benefits just a third of claimants who are worse off since the £20 cut.

The price of a pint

Considering the increase in living costs, cuts to Universal Credit, and the like, news that alcohol duty is being cut is unlikely to feel as exciting as Rishi Sunak has made it sound. Still, from February 2023, there will be what Sunak calls “the most radical simplification of alcohol duties for 140 years.”

This means a pint at your local will, according to the Treasury, will be 3p less dear. Rose, fruit ciders, ‘lower strength,’ beers and wines and liqueurs will also be cheaper.

This change has been made in part to get more people to go out for drinks rather than staying at home.

Changes to travel costs

While the tax on petrol and diesel remains unchanged for the 12th year, at 57.95p per litre, those looking to set their sights a little further than France or Spain are likely to see flight prices hiked. This is because flights over 5,500 miles will see Air Passenger Duty (APD) rise. This is a levy airlines pay, which passengers fund through the cost of plane tickets.

However, duty on domestic flights from April 2023 will be lower, meaning it’s likely that it will be cheaper to fly across the UK.

Tags: Alcohol Duty, Economy, national minimum wage, savings, Travel, Universal credit

A guide to ‘Buy Now, Pay Later,’ deals, the dangers and safeguards

by Madaline Dunn

In recent years, ‘Buy Now, Pay Later’ deals (BNPL) have become increasingly popular and were particularly boosted by the pandemic, which created a significant increase in online shopping. Data from the FCA recently revealed that in 2020, the use of BNPL nearly quadrupled and is now at £2.7bn.

These deals offer buyers the option to pay for their purchase over a period of time, rather than all at once, and have been dubbed by some as “the future of millennial finance.” However, while this once niche form of credit has benefits, it’s not without its dangers. More and more people are raising concerns that it encourages unsustainable spending, leaving many with debts they can’t pay off. 

At The Salary Calculator, we’ll help you understand:

• The ins and outs of BNPL
• Why BNPL deals can be dangerous
• The safeguards out there to protect you from harm 

What is ‘Buy Now, Pay Later’?

Buy Now Pay Later (BNPL) agreements allow buyers to purchase items on credit and pay for them later down the line, typically through interest-free instalments. For many, this seems like a relatively hassle-free payment method and has been primarily adopted by the under 30’s demographic.

There are a few different types of BNPL deals, the first works on the basis of a buyer splitting their payments into segments, typically with an upfront payment. Following the first payment, the buyer agrees for the provider to take the rest of the money over an agreed period of time. 

Another example of a BNPL deal works by the buyer delaying their payment for purchase for a set number of days, usually between 14-30 days.

The final form of BNPL involves arranging a formal payment plan at the point of purchase, and the buyer may have to pay interest and may have their means-tested.

Some examples of BNPL providers include Clearpay, Laybuy and Klarn, the biggest provider.

Speaking about the draw of BNPL to The Guardian, one BNPL investor said: “It increases the basket size, and it also reduces dropped baskets.”

Why are BNPL deals dangerous? 

Of course, as with anything, there are drawbacks to BNPL deals, and they have the potential to put consumers at significant risk.

Speaking about the dangers associated with BNPL deals, Sue Anderson from StepChange, a debt charity, said: “Buy now, pay later services don’t give individuals enough time or protection to stop, pause and understand the consequences of their purchase. Sometimes this even means people end up using BNPL at the online checkout without actually realising they have signed up.”

She added: “Second, affordability checks are only used by some BNPL lenders, and protections against taking out multiple BNPL loans are lacking. Finally, due to a lack of regulation, it’s not clear whether these services are treating customers fairly and in a way that is consistent with other credit products.”

Meanwhile, Citizens Advice likened BNPL deals to “quicksand” in that they’re “easy to slip into” but “very difficult to get out of”.

Of course, BNPL deals don’t take into consideration circumstance changes either.

This year, in response to these concerns, the government announced this area would be regulated by the Financial Conduct Authority (FCA) due to the risk posed to consumers. Now a consultation is underway to assess how to navigate the regulation issue.

What safeguards are out there to protect buyers from harm?

For a long time, personal finance experts have called for regulation around BNPL deals, and now it appears the government is finally taking heed with their consultation.

Going forward, the government is proposing that BNPL users should have the ability to take complaints to the independent Financial Ombudsman Service. On top of this, the government has also proposed that advertising and promotions relating to BNPL should be regulated by, for example, the Advertising Standards Authority or the Committees of Advertising Practice.

Moreover, the government says that statutory protection should be outlined under Section 75 of the Consumer Credit Act. Further protections have been suggested in the form of compulsory credit checks so that those who wish to take on BNPL products can afford to do so. 

The consultation ends at the beginning of next year, so it’s unlikely we’ll see any immediate changes. That said, in the meantime, when encountering BNPL products, it’s important to ask yourself the following questions:

• Can I afford the repayments?
• Are there better options out there regarding borrowing?
• Am I interested in buying this item because of the BNPL offer?

Tags: Loans, Money, savings, The Salary Calculator