Rising tax receipts mask a growing pressure on earners

But beneath these headline figures lies a more complex and potentially concerning trend for both businesses and individuals.

New figures show that gross tax and National Insurance contributions (NIC) receipts reached £938.8bn for the year to March 2026, a significant increase of £80.2bn (9.34%) year-on-year. While this strengthens the government’s fiscal position, it also signals a rising burden that is increasingly falling on higher and middle earners.

As Tom Goddard, Assistant Manager, explains:

HMRC’s latest statistics show that gross tax and National Insurance contributions (NIC) receipts for the period April 2025 to March 2026 totalled £938.8bn, representing an increase of £80.2bn, or 9.34%, compared with the same period a year earlier. But the impact of rising everyday taxation on high and middle earners is becoming increasingly evident.

Policy context: fiscal drag and structural reliance

Fiscal drag, where tax thresholds remain frozen but inflation or rising wages push people into higher tax brackets, is also contributing to the pressure on high and middle earners. The government extended the tax threshold freeze to April 2031 at the 2025 Autumn Budget, meaning this financial pressure point won’t go away any time soon.

This creates a structural shift in the tax base. Historically, the UK has relied heavily on its highest earners:

With the UK experiencing its highest tax burden in 70 years, there are signs that higher earners are relocating to more tax-efficient jurisdictions. Historically, the top 1% of UK earners have contributed around 30% of income tax revenues, and any reduction in this group’s contribution risks shifting the burden further towards middle-income households.

What’s driving the increase in receipts?

Of the £938.8bn total of NIC and gross tax, £552.8bn was generated from income tax, capital gains tax (CGT) and NICs, up £63.8bn on last year. This rise is likely driven by a combination of fiscal drag, increases to Capital Gains Tax (CGT) rates introduced from October 2024 (payable January 2026), and higher employer NIC contributions which was effective from April 2025. Inheritance tax (IHT) receipts for the same period reached £8.5bn, an increase of £200mn compared with the previous year.

For businesses, higher employer NICs directly increase the cost of employment, while for individuals, changes to CGT and IHT further tighten personal finances and wealth planning strategies.

Short-term gains: improved public finances

Higher tax receipts, however, likely contributed to government borrowing falling to a four-year low in March, supported by reduced debt interest costs. According to the Office for National Statistics (ONS), the UK government borrowed £12.6bn during the month, £1.4bn less than in March 2025.

Additionally, unemployment fell to 4.9% in the three months to February 2026, down from 5.2% in the previous quarter. However, wage growth slowed to its weakest rate since late 2020. At the same time, taxes on wages in the UK rose more in 2025 than in any other advanced economy, according to the OECD.

This combination, falling unemployment but slowing wage growth suggests that while more people are working, real income growth is under pressure, particularly once taxation is factored in.

Constraints ahead: limited room for tax relief

Despite improved fiscal metrics, external pressures may limit the government’s ability to ease the tax burden.

Tom concludes:

But external geopolitical pressures may limit the Chancellor’s ability to build on this progress. Ongoing conflict in the Middle East and the war in Ukraine are expected to place further strain on public finances by reducing fiscal headroom and any tax breaks are becoming increasingly unlikely.

In other words, even as revenues rise, the scope for meaningful tax cuts remains constrained – leaving businesses and individuals to plan for a persistently high-tax environment.

Why this matters

For businesses, rising employer NICs and slower wage growth create a challenging dynamic: higher employment costs alongside pressure to maintain competitive pay. This could influence hiring decisions, investment strategies, and workforce planning.

For individuals, particularly middle and higher earners the impact is more direct. Fiscal drag, increased CGT, and sustained high tax rates reduce disposable income and may alter decisions around work, investment, and even residency.

At a macro level, the UK’s reliance on a relatively small group of high earners creates a vulnerability. If this group shrinks or relocates, the tax burden may shift more heavily onto the broader population.

What you should consider / do next

Review tax efficiency: Individuals and business owners should reassess their tax planning strategies, particularly in light of frozen thresholds and higher CGT rates.

Evaluate remuneration structures: Employers may need to rethink salary, bonus, and benefits structures to balance rising NIC costs with employee expectations.

Plan for a sustained high-tax environment: With limited likelihood of near-term tax cuts, long-term financial planning should assume continued pressure.

Monitor mobility and talent risks: Businesses reliant on high earners or internationally mobile talent should consider the implications of potential relocation trends.

Seek specialist advice: As the tax landscape becomes more complex, proactive planning with expert guidance can help mitigate risks and identify opportunities.

Would you like to know more?

If you would like to discuss any of the above, please speak to your usual Blick Rothenberg contact.