Millions shifted into higher tax brackets

As tax thresholds remain unchanged, the number of taxpayers paying the additional rate will exceed 1 million for the first time.

Tax revenue and increasing burden

This year, HMRC is projected to collect £63.2 billion in income tax, contributing to a total of £272.6 billion in tax revenue, which is an increase of £16.3 billion compared to the previous year. Since 2021, more than 1.77 million individuals above the state pension age have been required to pay income tax, a number that is expected to rise as thresholds are set to remain unchanged until at least 2028.

Wage inflation and expanding tax base

Due to wage inflation, it is estimated that an additional 4.4 million people will become liable for income tax this year as their earnings surpass the frozen personal allowance. The freeze on tax thresholds since the 2021/22 tax year has resulted in an additional 1.9 million people paying the higher 40% income tax rate, with another 310,000 expected to be affected this year.

Conclusion

The freezing of tax thresholds since the 2021/22 tax year has led to an increasing number of individuals being drawn into higher tax brackets as wages continue to rise.

Source: Accountancy Daily

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