UK Tax Receipts Hit a Record £938.8 Billion — Where Does It All Go?

HMRC collected £938.8 billion in tax and National Insurance during the 2025/26 tax year, a rise of 9.3% on the previous year and the highest figure on record. It's a huge number that's easy to skim past in a headline — but breaking down where it comes from, and where the UK sits compared with other countries, says a lot about the pressure on household budgets right now.

Where the money comes from

Income Tax, Capital Gains Tax, and National Insurance together accounted for 59% of total receipts — in other words, well over half of everything HMRC collects comes directly from what people earn, rather than from VAT, corporation tax, or other business-facing levies. That's a structural feature of the UK tax system worth understanding: a rise in the total tax take doesn't necessarily mean businesses are paying more — it more often reflects rising wages (which pull more income into higher tax bands, especially with the personal allowance and higher-rate threshold both frozen), employment growth, or policy changes to Income Tax and NI rates and thresholds.

Why the total keeps climbing

Freezing tax thresholds while wages rise is sometimes called "fiscal drag" — as pay increases with inflation and earnings growth, more of each person's income crosses into a taxed band or a higher rate, even though no tax rate has technically gone up. This is a major, quiet driver of rising total receipts, and it's part of why receipts have grown faster than the economy in recent years even without headline tax rate rises.

The Office for Budget Responsibility forecasts the UK's overall tax-to-GDP ratio at 37.0% for 2026/27, up from 36.3% the year before and a long way above the 32.7% recorded in 2000 — a two-and-a-half-decade climb that reflects both policy choices and the cumulative effect of threshold freezes.

How the UK compares internationally

The UK's tax burden sits in the middle of the G7 pack. According to the latest OECD data, the UK's tax-to-GDP ratio (34.4% in 2024) sits below Italy (42.8%), France (43.5%), and Germany (38.0%), but comfortably above Japan (33.7%), Canada (34.9%), and — most strikingly — the United States, where the equivalent figure is just 25.6%. The average across all OECD countries was 34.1% in 2024, meaning the UK now taxes at a rate modestly above the OECD average and well above the US, but still below most large continental European economies.

What this means for your budget

A rising national tax take, driven substantially by frozen thresholds rather than headline rate increases, is part of why many households feel their pay rises haven't translated into more disposable income — even when nominal wages are growing, more of that growth is being absorbed by tax before it reaches your bank account. It's a useful lens for planning: if you've had a pay rise this year, it's worth checking which tax band you now sit in, since frozen thresholds mean crossing into a higher band is easier than it used to be.

Checklist: understanding your own position

• Check which Income Tax band you're in using HMRC's rates and allowances page, since thresholds haven't moved even as wages have risen.
• If a pay rise or bonus pushes you close to the £50,270 higher-rate threshold or the £100,000 mark (where the tapered personal allowance and other benefits start reducing), consider whether pension contributions could keep you below a costly cliff-edge.
• Remember frozen thresholds affect National Insurance too, not just Income Tax — check your full deduction, not just the headline rate.
• Keep half an eye on the Autumn Budget, confirmed for 28 October 2026, for any further threshold or rate changes that could affect your take-home pay from April 2027.

Key Numbers

• Total UK tax and NI receipts, 2025/26: £938.8 billion, up 9.3%
• Share from Income Tax, CGT and NI combined: 59%
• UK tax-to-GDP ratio forecast, 2026/27: 37.0%
• US tax-to-GDP ratio (latest OECD data): 25.6%

Sources

• Tax news in brief 5 August 2026 — ICAEW
• Why UK taxes are rising, but public services will get worse — TaxPolicy.org.uk
• Revenue Statistics 2025 — OECD
• Income Tax rates and Personal Allowances — GOV.UK

Educational content only — not financial advice.