Millions of British workers are set for an unwelcome surprise in their pay packets this April as frozen tax thresholds create a stealth tax hike across the nation. Despite the government maintaining current tax rates, the combination of wage growth and static thresholds means many employees will effectively pay more tax than ever before.
The Frozen Threshold Trap
Since 2021, the personal allowance has remained frozen at £12,570, while the higher rate threshold has stayed at £50,270. This government policy, initially described as temporary, has now been extended until 2028, creating what experts call 'fiscal drag' - where inflation and wage increases push more people into higher tax brackets without any change to the official rates.
What This Means For Your Wallet
The impact varies significantly depending on your earnings:
- Basic rate taxpayers: Those earning between £12,571 and £50,270 pay 20% income tax
- Higher rate taxpayers: Earnings between £50,271 and £125,140 are taxed at 40%
- Additional rate taxpayers: Income over £125,140 faces a 45% tax rate
Real Examples: Your Tax Bill Increase
For a worker earning £30,000 annually, the current system means paying £3,486 in income tax. However, as wages increase to keep pace with inflation, someone earning £35,000 would see their tax bill jump to £4,486 - nearly £1,000 more.
The situation becomes even more dramatic for higher earners. An individual making £60,000 currently pays £11,432 in income tax, but as pay rises push them further above the frozen threshold, the tax burden increases disproportionately.
National Insurance Changes Provide Partial Relief
There is some good news amidst the tax squeeze. The main rate of National Insurance has been cut from 12% to 10%, providing some offset to the income tax increases. For an average worker earning £35,000, this NI reduction could mean around £450 extra per year.
Planning Ahead: Key Dates and Figures
With the new tax year beginning on April 6th, 2024, workers should prepare for changes to their take-home pay. The frozen thresholds affect not only income tax but also National Insurance calculations, creating a complex financial picture for millions.
Experts warn that the combination of frozen thresholds and ongoing inflation means the tax burden on working Britons is reaching record levels, with middle-income earners feeling the pinch most acutely.
