Tax revenue sources in UK

Readers Question: Where does the UK government get its money from?

UK tax revenues come from a variety of sources. The main sources of tax revenue include:

  1. Income tax (main tax rate is 20%)
  2. National Insurance (NI) – a form of income tax
  3. VAT (20% on most goods and services)
  4. Corporation tax
  5. Council Tax (local government)
  6. Business rates
  7. Excise duties (alcohol, cigarettes)
  8. Other taxes include (stamp duty, carbon tax, airport tax, inheritance tax, capital gains)

Most tax is collected by HM Revenue and Custom.

HM Revenue and Custom 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)

Tax revenue sources 2016/17

Value added tax VAT135.4
Fuel duties27.9
Business rates26.8
Stamp duty land tax12.4
Stamp taxes on shares3.7
Tobacco duties8.7
Alcohol duties11.1
Vehicle excise duties paid by businesses2.2
Other taxes on production24.6
Income tax (gross of tax credits)185.6
Corporation tax55.9
Vehicle excise duties paid by households3.7
Bank levy3.0
Television Licence fee receipts3.2
Misc tax inc. inheritance7.5
Other central government taxes17.4
National insurance contributions125.9
Council Tax30.4
Public Sector Interest and Dividends56.3
Public Sector Gross Operating Surplus47.2
Other Public Sector Receipts5.2
Public Sector Current Receipts5,6726.5

 

Source: Public sector current receipts ONS

[abridged version, I left out some obscure taxes, which raise very litte.

Pie chart of tax revenue

 

Tax revenue

 

 Sources:

 

List of Tax Receipts by Type of Tax

OBR forecast. OBR

Source of Tax

 

How Much Income Tax do People Pay?

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.

income tax paid

 

Changes in tax revenue 1997 – 2014

uk-tax-revenue-97-14

Tax and Inequality

The UK tax system plays a role in redistributing income.

tax benefits

  • The poorest 10% pay £4,000 in tax (mostly indirect, VAT, excise duty). But, receive over £5,000 in tax credits and benefits.
  • The richest 10% pay over £30,000 in tax (mostly direct, income tax). They receive around £2,000 in benefits.
  • Overall, the average household pays £12,000 in tax and receives £5,000 in benefits.
  • However, inequality in the UK has increased since 1980. See: Inequality in the UK

Tax receipts and government spending

In a recession, tax receipts tend to fall significantly as the government receive lower income tax and lower corporation tax.

tax revenues

Source of Graphs: UK Budget 2011 HM Treasury

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