Frozen tax thresholds: why now is the time to speak to your accountant
Frozen tax thresholds: why now is the time to speak to your accountant
Frozen income tax thresholds are quietly reshaping the UK tax landscape. According to the latest HMRC figures, the number of higher rate taxpayers is expected to reach nearly 8 million in the current tax year, up from 7.29 million in 2025-26 and around two million higher than three years ago.
This sharp rise is a clear example of fiscal drag: when wages increase but tax thresholds remain frozen, more people are pulled into higher tax bands even if they do not feel better off in real terms. That makes it increasingly important to speak to your accountant early, so you can understand your position and plan before tax year-end deadlines arrive.
The numbers behind the shift
HMRC data shows that higher rate taxpayer numbers have risen by 51% from 5.76 million in 2023-24. Additional rate taxpayer numbers are also rising quickly, with 893,000 people currently paying the top rate and that figure is projected to reach 1.29 million by March 2027.
The increase has been intensified by the lower additional rate threshold of £125,140, where the 45% income tax rate begins. Combined with inflation and the rising cost of living, this means more households are facing a heavier tax burden without necessarily feeling wealthier.
Why fiscal drag matters
Fiscal drag can feel invisible at first. Pay may rise, but when allowances and thresholds stay frozen, a larger share of income becomes taxable or is taxed at a higher rate. Over time, this can reduce take-home pay and make financial planning more important for people who may never have considered themselves high earners.
An accountant can help you look beyond headline earnings and assess how pay rises, bonuses, dividends, rental income, pension contributions and savings interest may affect your overall tax position.
Income tax receipts are climbing too
The overall income tax take is also rising sharply. HMRC figures show that income tax receipts were £274 billion in 2023-24 and are projected to reach £347 billion in 2026-27. That is a substantial increase from the £93 billion paid in income tax in 1999-2000.
Income remains concentrated among the highest earners. In 2023-24, the top 10% of income tax payers accounted for 34% of gross income before tax, while the top 5% accounted for 24.6% and the top 1% accounted for 12.4%. By contrast, the bottom 10% accounted for 3.4%.
HMRC has also noted that income inequality has grown since 2020, partly driven by wage growth among the top 50% in 2021-22 following the pandemic.
What could change next?
Further changes to savings and pensions could make tax-free planning options more limited. From next April, changes to ISAs are expected to reduce the cash ISA limit, while pension pots are also set to be brought into the inheritance tax net
At the same time, more people are looking for additional income through side hustles, property, influencing, crypto and other sources. Those routes can bring opportunity, but they can also add complexity when it comes to reporting income and managing tax liabilities.
If you have more than one source of income, professional advice can be especially valuable. Your accountant can help you understand what needs to be reported, what allowances may be available, and whether there are practical steps you can take to manage your tax bill responsibly.
More taxpayers are entering the system
The total number of UK taxpayers rose by 2.2 million in a single year, reaching 36.7 million in 2023-24, up from 34.5 million the year before. HMRC said the rise was driven by frozen personal allowances and income growth, which increased the number of individuals liable for income tax.
Pre-pandemic, there were 31.5 million taxpayers and 4.4 million higher rate taxpayers. HMRC projections suggest the total number of taxpayers could reach 40.8 million in the current tax year, up more than 10% in just two years.
Pensioners could also be affected
State pensioners are another group to watch. The personal allowance is currently £12,570, and the new state pension is moving closer to that level. Unless action is taken, some pensioners with no additional income could be brought into income tax for the first time.
Key takeaway
Frozen thresholds may sound technical, but their impact is very real. More people are paying income tax, more are moving into higher bands, and many households are finding that pay rises do not translate into the improvement in take-home income they might expect. For anyone close to a tax threshold, regular reviews of income, pensions, savings and allowances are becoming an essential part of financial planning. Speaking to your accountant can help you identify where you stand, avoid surprises, and make informed decisions before key tax deadlines.
How Kennedys Accounting can help
At Kennedys Accounting, we are here to help you understand how these changes may affect you and what practical steps you can take. Whether you are approaching a higher tax threshold, managing multiple income streams, reviewing your pension contributions or simply want to avoid unexpected tax bills, our team can provide clear, tailored advice.
Please get in touch with Kennedys Accounting to discuss your circumstances and make sure you are planning ahead with confidence.