Frozen tax thresholds are becoming a growing concern for the British public, after HMRC figures showed tax and National Insurance payments rose by £9.8 billion compared with May 2025.
UK taxpayers reportedly paid £153.7 billion in tax and National Insurance in May 2026, highlighting the impact of fiscal drag following the threshold freeze introduced in 2021.
How much more tax has been paid?
Over the past five years, even modest pay rises have pushed more taxpayers into higher tax bands, as thresholds have been frozen from 2021/22 until 2031.
Reports suggest Britons have paid 10 per cent more income tax this year than at the same point last year.
Income Tax receipts have risen sharply since thresholds were frozen, increasing by 46 per cent since 2021.
The latest HMRC receipts show employer National Insurance contributions (NICs) reached £11.3 billion in May, up eight per cent from £10.66 billion in May last year.
Rising tax costs are not only affecting individuals; they are also placing significant pressure on businesses.
The latest data shows Corporation Tax receipts rose from £2.9 billion in May 2025 to £3.3 billion in May 2026, a 12 per cent increase.
Total tax receipts reached £66.38 billion in May 2026, bringing the year-to-date total to £153.68 billion, up from £143.90 billion over the same two-month period in 2025/26.
The effects of fiscal drag are becoming increasingly clear and are being felt across the board.
What is fiscal drag?
In a healthy economy, wages usually rise in line with the cost of living. However, fiscal drag occurs when wage growth and inflation push taxpayers into higher tax bands or reduce the real value of tax-free allowances.
When thresholds are frozen, two things typically happen:
- Bracket creep – As salaries rise, a larger share of income can fall into higher-rate tax bands.
- Erosion of allowances – The real value of tax-free personal allowances falls, meaning more income becomes taxable.
Although a pay rise is welcome, it may also push you into a higher tax band, so it is important to consider the tax implications.
What are the frozen income tax thresholds?
The UK’s income tax thresholds are frozen at their current levels until 5 April 2031. They are:
- Personal allowance – £12,570, the point at which you start paying 20 per cent Income Tax.
- Basic rate – The 20 per cent rate applies to earnings up to £50,270.
- Higher rate – Earnings above £50,270 are taxed at 40 per cent.
- Additional rate – Earnings above £125,140 are taxed at 45 per cent.
How can we help?
As fiscal drag becomes more noticeable, making full use of your tax-free allowances can help reduce its impact.
Our team can help you maximise your tax-free allowances with tailored tax plans that fit your financial calendar.
For advice on managing tax-free allowances, get in touch today.