The Chancellor’s tax freeze will see thousands more UK earners forced to pay higher income tax this year, according to HM Revenue & Customs’ latest figures.
The number of higher rate taxpayers is forecast to increase to 5.6 million in the 2023-24 tax year, while the number of additional rate taxpayers will rise by 55% to 862,000.
The surging figures are as a result of Chancellor Jeremy Hunt’s decision to freeze income tax thresholds until 2028, in a bid to shore up public finances in the wake of the Covid pandemic. The Chancellor also cut the higher rate of tax threshold from £150,000 to £125,140.
Since tax bands were frozen, there has been a 142% increase in the number of additional rate payers, HMRC’s figures reveal.
Laura Suter, head of personal finance at AJ Bell, said: “Government figures lay bare the real impact of the lowering of the additional rate income tax band at a time when wages are growing fast – with the number of additional rate taxpayers hitting 862,000, the highest ever. If we look back to when the Conservatives first came to power, during the coalition government in 2010, we’ve seen a near four-fold increase in the number of additional rate taxpayers, rising from 236,000 up to 862,000.
“The impact on higher rate taxpayers has been more muted but still significant. This year the number of higher-rate payers is expected to hit its highest ever, with 5.6 million people paying tax at 40%. This represents a 29% increase since tax bands were frozen in 2021, showing the extent to which the stealth tax has hit people’s pockets. Current high inflation rates mean more people are getting significant pay rises to try to keep pace with rising prices. But with income tax bands frozen it means many are being pushed into the next tax bracket.”
HMRC’s data also showed that the number of pensioners paying income tax has risen sharply since the introduction of tax freezes. The number of over-65s who are paying tax has hit more than eight million for the first time.
Suter added: “Soaring inflation meant that the State Pension increased by 10.1% in April taking the full flat-rate state pension to £10,600 a year. However, with the Personal Allowance having been frozen at £12,570 it means that the state pension is taking up the lion’s share of that tax-free allowance.
“If we look over the longer term, there are now two million more pensioners paying income tax than there were when the Tories came to power in 2010. But one million of those have been dragged into the income tax net in the past two years alone, thanks to frozen tax bands.”
