Readers Question: Where does the UK government get its money from?
The big four tax revenue sources are
- Income Tax: The largest single source of revenue. For 2025-26, OBR forecasts it will raise ~£330.7 billion — about 26.9% of all receipts. OBR
- National Insurance Contributions (NICs): In 2025-26, NICs are forecast to bring in ~£200.6 billion, or 16.3% of total receipts. NI is a type of income tax on employers and employees. OBR
- Value Added Tax (VAT): The main consumer-spending tax. For 2025-26, expected VAT revenues are ~£180.4 billion, around 14.7% of total receipts. OBR
- Corporation Tax: Taxes on corporate profits are also significant. For 2025-26, onshore corporation tax is forecast to raise ~£95.8 billion, about 7.9% of total receipts.
Lesser taxes
- Council Tax (local government)
- Business rates
- Excise duties (alcohol, cigarettes, petrol tax)
- Other taxes include (stamp duty, carbon tax, airport tax, inheritance tax, capital gains)
UK tax revenues come from a variety of sources. The main sources of tax revenue include:
- Income tax (main tax rate is 20%)
- National Insurance (NI) – a form of income tax
- VAT (20% on most goods and services)
- Corporation tax
Tax revenue as a share of GDP
Tax revenue as a share of GDP
UK Tax revenue share 1900-2019. IFS
Source: Commons
Most tax is collected by HM Revenue and Custom.
HM Revenue and Customs are responsible for income tax, excise duties, VAT and NI. Tax revenue at HM Treasury
However, the central government also get revenue from other sources. Public sector finances at ONS (less detailed)
Which taxes are growing?
Income tax
- In 2000-01, income tax receipts were £107 bn
- In 2024-25 income tax receipts are expected to be £310 bn
Inheritance tax is increasing as a share of GDP
Petrol tax is declining
Alcohol and tobacco duties also falling as people consume less.
Tax revenue sources 2016/17
| Value added tax VAT | 135.4 | |
| Fuel duties | 27.9 | |
| Business rates | 26.8 | |
| Stamp duty land tax | 12.4 | |
| Stamp taxes on shares | 3.7 | |
| Tobacco duties | 8.7 | |
| Alcohol duties | 11.1 | |
| Vehicle excise duties paid by businesses | 2.2 | |
| Other taxes on production | 24.6 | |
| Income tax (gross of tax credits) | 185.6 | |
| Corporation tax | 55.9 | |
| Vehicle excise duties paid by households | 3.7 | |
| Bank levy | 3.0 | |
| Television Licence fee receipts | 3.2 | |
| Misc tax inc. inheritance | 7.5 | |
| Other central government taxes | 17.4 | |
| National insurance contributions | 125.9 | |
| Council Tax | 30.4 | |
| Public Sector Interest and Dividends | 6.3 | |
| Public Sector Gross Operating Surplus | 47.2 | |
| Other Public Sector Receipts | 5.2 | |
| Public Sector Current Receipts | 726.5 | |
Source: Public sector current receipts ONS
[abridged version, I left out some obscure taxes, which raise very little.
- Tax revenue at HM Treasury
- Public sector finances at ONS (less detailed) Dataset of tax revenue
How Much Income Tax do People Pay?
Actual income tax paid at different incomes (England, 2024/25)
Standard personal allowance (£12,570).
People often assume they pay the headline marginal rate on all their income (e.g., 20%, 40%).
But you only pay the higher rate on the part of income in that band, so the overall (effective) tax rate is much lower.
| Annual income | Income tax paid | Effective tax rate |
|---|---|---|
| £20,000 | £1,486 | 7.4% |
| £30,000 | £3,486 | 11.6% |
| £40,000 | £5,486 | 13.7% |
| £50,000 | £7,486 | 15.0% |
| £60,000 | £11,486 | 19.1% |
| £80,000 | £19,486 | 24.4% |
| £100,000 | £27,486 | 27.5% |
| £125,000 | £42,486 | 34.0% |
UK Income tax is based on marginal tax rates. See: marginal tax rates.
The table below is a useful guide to how much income tax you actually pay. It shows that income tax in the UK is progressive. (those on higher incomes pay bigger % of tax.
Related
- Falling UK tax revenue
- Types of tax
- UK government spending
- UK national debt
- What does government spend its money on?
- Is the UK tax system fair?
External links
About The Author
If the Government gets it’s money from taxes to spend on things, where is the source of this money? For example, I receive Pensions and pay about £5.5k in taxes alone. There must be an origin of money – whatis it?
Please could you tell me when the new ATAD European tax avoidance treaty comes into force,will the revenue collected still go to our treasury or will it go to the European central bank?