Published 6 April 2025 · 10 min read

How Has Income Tax Changed? UK 2022-2026

The past four tax years have been a rollercoaster for UK taxpayers. We have had a Health and Social Care Levy that lasted barely a year, two significant National Insurance cuts, a reduced additional rate threshold, and frozen personal allowances that have quietly dragged millions of people into higher tax bands. If your payslip has felt like a moving target, you are not imagining it. This article breaks down exactly what has changed, year by year, and what it means for your take-home pay.

2022/23: The year of the Health and Social Care Levy

The 2022/23 tax year was one of the most turbulent in recent memory. The government introduced a 1.25% Health and Social Care Levy on top of existing National Insurance rates, pushing the employee rate to 13.25% and the employer rate to 15.05%. The stated purpose was to fund the NHS backlog and social care reform — the extra revenue was projected to raise £12 billion per year.

For an employee on £35,000, the 13.25% rate meant annual NI of approximately £2,974. Combined with income tax of £4,486, total deductions came to £7,460, leaving take-home pay of £27,540. The levy was controversial from the start, and within months, a new Chancellor reversed it — but not before millions of taxpayers had felt the pinch.

The personal allowance and basic rate threshold remained at £12,570 and £50,270 respectively, where they had been frozen since 2021/22. The additional rate threshold was still £150,000, meaning only earners above that level paid the 45% top rate.

2023/24: NI cut and the additional rate bombshell

The 2023/24 tax year brought two significant changes. First, the Health and Social Care Levy was scrapped, and the employee NI rate was set at 12% — lower than the 13.25% of the previous year but still higher than the pre-levy rate of 12%. Second, and less widely noticed, the additional rate threshold was slashed from £150,000 to £125,140.

The additional rate change was significant for higher earners. Previously, you only paid 45% on income above £150,000. Now, it kicks in at £125,140 — the point at which the personal allowance is fully withdrawn. This created a cleaner but more punitive system: income between £100,000 and £125,140 still faces an effective 60% marginal rate (due to the personal allowance taper), and income above £125,140 is taxed at 45% rather than 40%.

For our £35,000 earner, the main benefit was the NI reduction. Annual NI dropped from £2,974 to £2,694 — a saving of £280. Combined with unchanged income tax, take-home pay rose to £27,820. Not transformative, but a welcome improvement after the levy year.

2024/25: The big NI cut

The 2024/25 tax year delivered the most substantial NI cut in decades. The employee rate was reduced from 12% to 8% in two stages — first to 10% in January 2024 (technically within the 2023/24 year), then to 8% from April 2024. This was presented as a major tax-cutting measure, and for employees, it genuinely was.

On a £35,000 salary, annual employee NI fell from £2,694 to £1,794 — a saving of £900 compared to 2023/24 and £1,180 compared to 2022/23. Monthly take-home pay increased by roughly £75. For a £50,000 earner, the saving was even larger: approximately £1,508 per year.

However, the personal allowance and higher rate threshold remained frozen. With wages rising due to inflation, this meant that any pay rise was partially clawed back through fiscal drag. Someone who received a £2,000 pay rise kept roughly £1,400 of it after tax and NI — the remaining £600 went to the Treasury. The NI cut was real, but the frozen thresholds quietly offset some of the benefit for those whose wages were keeping pace with inflation.

2025/26: Stability at a cost

The 2025/26 tax year has brought relative stability to income tax rates. The employee NI rate remains at 8%, the personal allowance stays at £12,570, and the basic rate threshold is still £50,270. Income tax rates are unchanged at 20%, 40%, and 45%. For someone on the same salary as last year, the tax bill is identical.

But that stability masks the ongoing effect of fiscal drag. The thresholds have now been frozen for five consecutive years. Average earnings have risen by roughly 20% over the same period, meaning that a worker who earned £40,000 in 2021/22 might now earn £48,000 — and a much larger proportion of their income falls within the higher rate band. The Resolution Foundation estimates that threshold freezes will generate an extra £7 billion in tax revenue by 2027/28.

On the employer side, the secondary NI threshold was lowered to £9,100, increasing the NI bill for businesses. This has been particularly challenging for small companies with large payrolls, as the additional cost per employee can amount to several hundred pounds per year. Some businesses have responded by slowing hiring or reducing pay rises, which indirectly affects employees even though their own rates have not changed.

The numbers side by side

To illustrate how these changes add up, here is a comparison for someone earning £35,000 in each tax year. Income tax is the same throughout because the allowance and basic rate have not changed, so the differences are driven entirely by National Insurance.

Between 2022/23 and 2025/26, the NI cuts have put £1,180 more per year into the pocket of a £35,000 earner. That is roughly £98 extra per month — enough to notice, though perhaps not enough to feel life-changing. For higher earners the savings are proportionally larger, but they are also more likely to have been caught by the additional rate threshold change.

Understanding fiscal drag

Fiscal drag is the silent tax increase that happens when thresholds are frozen while wages rise. It does not make headlines like a change to NI rates, but its cumulative effect can be just as significant. When the personal allowance was last raised in 2021/22, average earnings were approximately £31,000. By 2025/26, they are closer to £37,000. That £6,000 increase is entirely taxable at 20% (or more), adding roughly £1,200 to the typical worker's annual tax bill.

The government has announced that the threshold freeze will continue until at least 2027/28. If wages continue to grow at 3-4% per year, by the time thresholds are unfrozen, millions of workers will be paying hundreds more in tax than they would if thresholds had been uprated with inflation. The Institute for Fiscal Studies estimates that fiscal drag will affect almost every taxpayer in the UK to some degree.

This is why comparing your tax bill across years is useful even if you think nothing has changed. The rates may be the same, but if your salary has risen, you are paying more tax — and understanding exactly how much more helps you plan your finances realistically.

What changed for higher earners

Higher earners have had a mixed experience. The NI cuts benefited them, but the reduction of the additional rate threshold from £150,000 to £125,140 increased their income tax bill. Someone earning £150,000 now pays 45% on £24,860 more of their income than they did in 2022/23, which amounts to roughly £1,243 extra per year in income tax.

The personal allowance taper continues to create a 60% effective marginal rate between £100,000 and £125,140. Combined with 2% NI, the total marginal rate in this band is 62%. For every extra pound earned in this range, you keep just 38p. This makes pension contributions particularly tax-efficient for earners in this band, as contributions reduce your adjusted net income and can restore your personal allowance.

What to expect next

The government has committed to not raising income tax, NI, or VAT rates during the current parliament. However, as we have seen, frozen thresholds achieve a similar effect without technically raising rates. The personal allowance freeze is expected to continue until at least 2027/28, and there is speculation about further reforms to employer NI to fund public spending.

For individual taxpayers, the best approach is to stay informed and plan proactively. Pension contributions, salary sacrifice, and ISA investments are all legitimate ways to reduce your tax bill. Checking your tax position at the start of each year — using our income tax comparison tool — helps you understand the impact of any changes and adjust your financial planning accordingly.

You can also use our full UK tax calculator for a detailed breakdown of your current tax year, including income tax, NI, student loan repayments, and pension deductions.

This article is for informational purposes only and does not constitute financial advice. Tax rates and thresholds may change. Always consult HMRC or a qualified professional for your specific circumstances.