As of February 2026, the UK’s personal allowance stays fixed at £12,570, the basic rate limit at £37,700, and the higher rate threshold at £50,270. These figures will not rise until after April 2031, following extensions confirmed in recent budgets.

This policy, often called fiscal drag, pulls more people into higher tax bands as wages increase with inflation or pay rises. For businesses, it means higher payroll costs through National Insurance, more tax on directors’ remuneration, and squeezed take-home pay for employees.

Over the coming years, this silent tax rise adds up. Many company owners and self-employed people face extra bills without any change in tax rates. The key is proactive planning to reduce the impact.

Here are some effective ways businesses can respond.

Understand the Impact on Your Business

Frozen thresholds affect salary, dividends, bonuses, and benefits. Directors who mix salary and dividends may find more income taxed at higher rates sooner. Employees earning modest pay rises could lose more to tax and NI, which can affect morale or retention.

For limited companies, employer NI kicks in above certain levels, adding to costs. With thresholds static, even small wage growth increases the bill.

Review your current setup. Check where team members sit relative to the £50,270 higher rate threshold and the £12,570 personal allowance. Tools that track company filings and changes can help monitor related admin quickly.

Maximise Pension Contributions

Company pension contributions remain one of the strongest offsets. They reduce corporation tax as a business expense and do not count as taxable income for the employee.

Increase contributions to use up unused annual allowances (up to £60,000, subject to earnings). Salary sacrifice schemes lower NI for both employer and employee while building retirement savings.

This approach counters fiscal drag directly by keeping taxable pay lower.

Optimise Remuneration Packages

Review how you pay directors and key staff. A lower salary (perhaps £12,570 or below NI thresholds) combined with dividends can still work well, though dividend rates rose in 2026.

Consider benefits in kind like electric company cars or health insurance, which may carry lower tax costs.

For growing businesses, reinvesting profits rather than extracting them delays personal tax until later, when thresholds might rise.

Use Salary Sacrifice and Other Allowances

Beyond pensions, salary sacrifice for cycle-to-work schemes, childcare vouchers (where available), or electric vehicle schemes reduces taxable income.

These perks lower NI contributions too. They help employees keep more net pay despite frozen bands.

Plan for Pay Rises Carefully

When giving increases, model the tax effect. Small, frequent rises might push people over thresholds unexpectedly. Larger, less frequent adjustments could be more efficient in some cases.

Promote flexible working or remote options to cut other costs, freeing up funds for better pay packages.

Stay on Top of Compliance and Records

Good oversight prevents surprises. Quick access to company details, confirmation statements, and filing history supports better decisions on remuneration or structure.

The Companies House on the Go app makes this straightforward. Search your company, check recent updates, view documents, and track changes from your phone without full portal logins.

Download for iOS: https://apps.apple.com/us/app/uk-companies-house-on-the-go/id6743302358

Or Android: https://play.google.com/store/apps/details?id=com.companiesonthe.go

For more resources on efficient company management, visit Companies on the Go.

Seek Professional Advice Early

An accountant or tax adviser can run scenarios specific to your business. They spot opportunities like carry-forward allowances or reliefs you might miss.

With thresholds locked until 2031, small changes now compound into big savings later.