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The chancellor’s decision to extend frozen income tax thresholds by a further three years will bring more people into the tax system and place HMRC under “considerable strain”, the ICAEW has warned.In today’s budget, Rachel Reeves announced that the freeze on tax bands on income tax and National Insurance will be extended for another three years until 2031, raising around £8bn through fiscal drag.
Personal allowance will remain at £12,570 and the higher rate threshold at £50,270 until April 2031.
The limits have been unchanged since April 2021. From 6 April 2026, the full state pension will sit only £23 below the personal allowance, increasing the likelihood that more pensioners will become liable for income tax.
The extension of the freeze on tax bands marks a U-turn for Reeves, who last year pledged that the freeze would end in 2028. Thresholds had previously increased in line with inflation.
ICAEW said the policy risked expanding the number of taxpayers at a time when administrative capacity is already stretched.
Katherine Ford, ICAEW technical manager of Personal Tax, said: “Freezing the personal allowance means that more people are brought into the tax system, many of whom will be pensioners as the state pension continues to rise, adding to already considerable strain on HMRC.
“We look forward to seeing the details of the government’s proposal to keep those with only small amounts of tax due on their state pensions out of Simple Assessment in future years.”
She added: “It is important that HMRC has the resources it needs to give taxpayers the help they deserve. We will continue to work with HMRC to ensure that all taxpayers are able to meet their tax obligations in a timely and efficient manner.”
