Martin Lewis is encouraging everyone to check their payslips as the cost of living crisis continues to escalate.
The MoneySavingExpert founder addressed his 8.4 million newsletter fans with a downbeat message as he discussed rising living costs amid the surge in taxes and energy bills.
What does Martin Lewis advise?
After admitting he had almost exhausted his supply of conventional money-saving tools for energy bills, Mr Lewis issued tips such as wearing heated insoles and using hot-water bottles to help save costs on heating bills in his weekly newsletter.
But he also warned of four important financial checks that need to be done by all households now that the new tax year has kicked in and higher natinal insurance takes effect.
In a tweet, he wrote: “Check your new take home pay after NI 10%ish rise - Check your tax code is correct (legally your responsibility) - Get/fill up a LISA for £1,000 free cash for 1st-time buyers - Grab or ditch cash ISAs”.
National Insurance (NI) payments have increased by 1.25 percentage points on 6 April, up from 12% to 13.25%.
NI is paid on earnings above £9,850 a year and from July, this threshold is rising to £12,570. Checking your payslip to ensure you have been taxed the correct amount is vital in this instance.
The Institute for Fiscal Studies (IFS) calculates the rate hike and threshold increase will result in a fall in the NI bill for those earning less than £35,000 for the 2022/23 tax year compared to the previous year. However, those earning more than £35,000 will pay more, the IFS calculates.
Mr Lewis explained in a video posted to Twitter: “If you’re under that [amount], this is again, if you’re over that [amount], then the two measures are a loss for you.
“Effectively the way it works on earnings is from over around £9,600, all the way up to around £35,000, you will either not pay any more, or lower down [the pay scale], will pay less National Insurance than currently.
“If you earn £35,000 or more then the 1.25 percentage point increase outweighs the change in the starting threshold, so you will pay more National Insurance.”
Check your tax code
Tax codes are a combination of numbers and letters representing how much you can earn before you are taxed. This is then used by your employer or pension provider to work out how much tax is taken from your pay or pension.
The most common code for the current tax year is 1257L for people who have one job or pension.
Being on the wrong tax code could mean you’re paying too much tax each month and you could potentially be owed money back.
You can find your tax code by looking at your latest payslip or your P4, or by asking your employer’s HR department. You can also check you tax code via the government website but you will need to register for a government gateway ID.
You can contact HMRC and ask them to investigate by calling 0300 200 3300, or by speaking to them online via their live chat service.
Get a Lifetime ISA
A Lifetime ISA (LISA) allows you to put away up to £4000 each year, with the government giving a 25% bonus on top of any money saved.
Whilst the deadline to open a Lifetime ISA for the previous tax year has now passed, you can still begin one for the new tax year.
As an individual, you can get £1,000 free each tax year but as a couple, you could get £2,000 free if you both have a LISA account maxed out.
The 25% bonus is paid monthly into your LISA and your money also accrues interest as well but you only get a bonus on your contributions, not on interest gained.
If you’re only able to save £1,000 in one year, you would still get a bonus of £250 from the government.
A LISA account can be opened by anyone between 18 and 39, but the money can only be used to put a deposit toward your first home or for retirement. If you take out your money for anything other than these reasons, you will lose your bonus and pay a 25% penalty, which works out at around a 6% loss.
Check your ISA
ISAs are in addition to the new Personal Savings Allowance (PSA) which came into effect on 6 April 2016.
The beginning of the tax year is the best time to take advantage of any ISA allowance, whether it is a lump sum, or by setting up a regular investment through a direct debit.
Getting it sorted now means your money will be protected from tax immediately and can take advantage of any share price rises, but you should first check if an ISA is the best savings platform for you.
If you are a basic rate taxpayer you can already earn up to £1,000 in savings income tax-free. For higher rate taxpayers, this is £500. That means the majority of people won’t need an ISA to save money tax-free.
For example, if your current account provider has a savings account with a better interest rate, it might be more convenient to put your cash in there instead, as that is tax-free too.