The 53 per cent tax surge: How frozen thresholds are quietly costing you more

It has been reported that UK taxpayers have paid £153.7 billion in tax and National Insurance (NI) in May 2026.

This is £9.8 billion more than was paid this time last year, as frozen tax thresholds push people into higher tax bands and the impacts of fiscal drag become apparent.

How much more tax have Brits paid?

This May, Brits have paid almost 10 per cent more income tax than this time last year. Income Tax bills have been climbing since 2021/2022, when the thresholds were frozen.

Every minor pay rise has pushed millions of taxpayers into paying more tax at higher rates. This is why the Income Tax has risen by 53 per cent for the first time since 2021.

The latest HMRC tax receipts also show employer National Insurance contributions (NICs) hit £11.3 billion in May – an eight per cent increase from May 2025 (£10.66 billion).

However, it doesn’t stop there as the overall tax burden for businesses is on the up.

The latest data shows that Corporation Tax receipts rose by 12 per cent in May to £3.3 billion, this is in comparison to £2.9 billion in 2025.

Income Tax has seen one of the highest increases since thresholds were frozen, seeing a whopping 46 per cent increase since 2021.

The total tax collected in May 2025 reached £66.38 billion, taking the year-to-date total to £153.68 billion, an increase from £143.90 billion over the same two-month period in the 2025/26 tax year.

After analysing these figures, it is no dispute that the impact of fiscal drag is becoming more and more apparent.

What is fiscal drag?

Fiscal drag is becoming more apparent, it is an economic phenomenon where rising wages and inflation push taxpayers into higher tax brackets or reduce the real value of tax-free allowances.

In a healthy economy wages typically go up to match the rising cost of living, however, if the government freezes the tax thresholds two things happen:

1. Backet creep – As normal salaries increase larger portions of income falls into higher rate tax bands.
2. Erosion of allowances – The real purchasing power of the tax-free personal allowances decreases meaning more money gets taxed.

This means that despite the fact that you have started earning more, the move into a higher tax bracket means that you overall don’t feel any wealthier.

What are the frozen income tax thresholds?

The UK has frozen the income tax thresholds at its current rate until 5 April 2031. The thresholds are:

• Personal allowance – £12,570 which is the point at which you start paying 20 per cent income tax.
• Basic rate – This 20 per cent rate is applied on earnings up to £50,270.
• Higher rate – Once you earn over £50,270 start paying tax at a 40 per cent rate.
• Additional rate – The additional rate begins when you earn £125,140. This amount is taxed at 45 per cent.

How we can help

The impacts of fiscal drag are becoming more noticeable month by month.

It is now more important than ever to ensure that you are making the most of your tax-free allowances to minimise the effects of fiscal drag.

Our accountants are here to help you maximise tax-free allowances by creating bespoke tax plans that fit within your financial needs.

Get in touch today for advice on managing your tax-free allowances.

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