THE upcoming tax raid targeting businesses could could result in stagnant wages for workers – but there are ways to squeeze the most out of your income.
From 6 April, the Government will raise employer national insurance contributions (NICs) from 13.8% to 15%.
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Concerns have been voiced that this tax hike may lead businesses to tighten their belts, leaving employees with little to no wage growth.
This comes at a time when shoppers are already grappling with rising prices, as several retailers and major hospitality players have warned they’ll need to pass the increased costs down the line.
In light of these challenges, workers across the country may be anxious about their pay packets stretching as far as they need to in the coming years.
However, if you’re facing a potential salary freeze, there are proactive steps you can take to bolster your income.
This includes the often-daunting task of requesting a pay rise.
To help navigate these uncertain times, Sarah Coles, head of personal finance at Hargreaves Lansdown, and Danni Hewson, head of financial analysis at AJ Bell, have shared five practical tips to help you make the most of your income ahead of April.
1. GET YOUR SALARY SURGING
Requesting a pay rise can feel intimidating, but approaching the conversation strategically can significantly improve your chances of success.
Preparation is key, so ensure you have solid evidence to support your case.
Start by researching what others in similar roles, either within your company or at competitors, are earning.
To avoid potentially awkward conversations with colleagues, utilise resources like Glassdoor or Indeed.
These platforms allow you to access salary data for specific roles, and both offer free apps available on the Apple App Store and Google Play.
If your research suggests your current salary is fair, focus on highlighting how you’ve exceeded expectations in your role over the past year.
Use specific examples to demonstrate your value, such as additional projects you’ve taken on, extra responsibilities you’ve assumed, or any training you’ve completed.
These can help build a case that you’re effectively performing at a higher level than your current role suggests.
Sarah said: “Any extra projects you worked on, responsibilities you took on or training could help you argue you’re actually doing a more senior job than the one you’re being paid for.”
If your request for a pay rise is declined, consider other avenues. For instance, you could explore the possibility of a promotion if there’s a more senior position available within your organisation.
Alternatively, you might consider moving to a new company or leveraging a job offer from elsewhere to negotiate with your current employer.
However, Sarah advises caution: “If you plan to use an external offer as leverage, be prepared to follow through if your employer refuses to match it.
“Avoid making empty threats.”
Another way to increase your income is by taking on a second job.
According to the latest figures from the Office for National Statistics (ONS), over 1.2million people in the UK currently juggle multiple jobs.
Sarah notes: “It’s important to strike a balance. Taking on too much overtime or additional work can lead to burnout, but exploring your options for extra income can be worthwhile.
“You might also consider whether a side hustle could be a viable way to supplement your earnings.”
For inspiration, we’ve listed off 25 side hustles you can do from the comfort of your sofa and make thousands of pounds.
What the National Insurance contributions hike means
From April 6, the government is hiking employer National Insurance contributions (NICs) from 13.8% to 15%.
The threshold at which businesses have to pay them is also being lowered from £9,100 to £5,000.
For staff on £30,000, an employer will have to pay an extra £865 a year.
The national minimum wage is also rising from April 1, costing businesses an extra £1,400 a year per worker.
2. PASSIVE INCOME STREAMS
Life is busier than ever, with data from the Office for National Statistics (ONS) published in May 2024 showing that adults are spending less time on leisure activities such as socialising and watching television compared to four years ago.
However, it’s possible to generate income without needing to actively work – a concept known as passive income.
One effective way to do this, according to Sarah, is by renting out a room in your home.
This could be done by taking in a lodger or listing the space on platforms like Airbnb, which can provide a steady stream of extra cash.
You could also monetise underutilised areas of your property, such as a parking space or garage.
Websites like Stashbee and YourParkingSpace make it easy to rent these out to those in need of extra storage or parking.
If you live in a location where parking is scarce, renting out your parking spot could be especially lucrative, as demand is likely to be high.
It’s an easy way to turn unused space into a valuable source of additional income.
3. SELL UNWANTED GEAR
There are plenty of platforms where you can turn your unwanted clothes, bags, and shoes into extra cash.
Popular options for selling pre-loved items include Vinted, eBay, and Facebook Marketplace.
However, it’s important to note that some platforms charge fees. For instance, Etsy takes a 6.5% commission on each sale, while eBay removed its seller fees in October, making it a more cost-effective choice for many.
If you’re selling items you no longer need, you won’t typically be considered as “trading” and therefore won’t need to pay tax on any income under £1,000.
This falls under the Government’s trading allowance, which is designed to cover casual sellers.
However, Danni Hewson from AJ Bell warns that the rules change if you’re buying goods with the intention of reselling them for profit.
“If you’re purchasing items to sell on, you’ll be classed as trading and will need to pay tax on any income exceeding £1,000,” she explains.
Make sure you’re clear on the distinction to avoid any unexpected tax bills while cashing in on your unwanted belongings.
4. MAX THE TAX
Taking advantage of tax-efficient strategies could provide a welcome financial boost in 2025.
One opportunity, according to Sarah, is the Rent-a-Room Scheme, which allows you to earn up to £7,500 per year in rental income tax-free.
This can be an excellent way to generate extra cash if you have a spare room available.
Another smart approach, as Danni from AJ Bell suggests, is increasing your workplace pension contributions.
This not only helps you save for the future but can also reduce the amount of income tax you pay.
Currently, income tax is charged on earnings above £12,570, with rates increasing at different thresholds.
However, the combination of rising salaries and frozen income tax thresholds means more people are being pulled into higher tax brackets.
By contributing more to your pension, you effectively lower your taxable income, reducing the amount you owe to HMRC.
Danni explains: “Paying a bit more into your pension could potentially offset that additional tax burden and give your future self a nice bonus.”
It’s also worth making full use of your ISA (Individual Savings Account) allowances.
Any interest earned within an ISA is completely tax-free, making it a more efficient savings vehicle compared to standard bank savings accounts.
In contrast, easy-access savings accounts may require you to pay tax on interest exceeding your Personal Savings Allowance.
For instance, basic rate taxpayers must pay tax on any interest earned above £1,000 per year.
Danni also highlights the importance of mindful spending: “It’s so easy for lifestyle creep to eat away at extra cash that could be far better used – whether that’s saving for an unforgettable summer holiday or simply ensuring you don’t run out of money before the end of the month.”
By combining these strategies – from leveraging tax-free allowances to increasing pension contributions – you can optimise your finances and keep more of your hard-earned money in your pocket.
5. STOP KIDDING AROUND
If you have children, it’s essential to ensure you’re claiming all the financial support you’re entitled to.
One key benefit is the Government’s free childcare scheme, which now offers 15 or 30 hours of free childcare per week, extended to parents of younger children.
This can significantly reduce the cost of childcare and free up funds for other household expenses.
Another option is the tax-free childcare scheme, which provides a Government top-up of up to £2,000 per year towards childcare costs.
This can be a valuable resource for working parents looking to ease the financial burden of childcare fees.
Additionally, parents may be eligible for child benefit, which is worth up to £1,331.20 annually.
It’s a straightforward way to receive extra income to help with the costs of raising children.
However, eligibility for these benefits does come with income thresholds.
You won’t qualify for the free childcare hours or tax-free childcare if you or your partner earns over £100,000 per year.
Similarly, child benefit begins to taper off if you or your partner earns £50,000 or more, and you may lose eligibility entirely if your income reaches £80,000 or above due to the high-income child benefit charge.
To help families navigate the available support, we’ve compiled a comprehensive guide outlining all the assistance parents can access, including free childcare hours, uniform grants, and more.
Taking advantage of these schemes could make a significant difference to your household budget.
Do you have a money problem that needs sorting? Get in touch by emailing money-sm@news.co.uk.
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