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Where does our tax money go?
Discover how much tax the average person pays and how the UK government gets taxes from and how they spend the money.
In the UK, anyone who earns more than £12,570 during the 2023/2024 financial year should pay income tax. However, you should also be aware that there are some situations where you don’t pay tax, such as earning tax-free interest with a cash ISA or tax-free profits with a stocks and shares ISA.
We look at how many people are paying tax, where the UK’s tax revenue comes from and what the money is spent on.
- The total number of income taxpayers has grown to 32.2 million in 2021/2022.
- The average person pays £4,038 per year in income tax.
- The top 10% of earners will pay at least £12,465 in income tax per year.
- In the 2021/2022 tax year, the government received £915 billion in tax revenue.
- Nearly half (43.2%) of UK tax revenue is spent on health and welfare.
- The tax gap has remained steady at 5.1%.
How many taxpayers are there in the UK?
The total number of income taxpayers has grown to 32.2 million in 2021/2022. The total number of income taxpayers has increased by 1.9% since 2022, whilst the number of adults in the UK has increased by 1.5%, meaning that more adults are now paying income tax.
|Tax year||Total number of income tax payers (in millions)|
How much is income tax in the UK?
|Current personal allowance||Up to £12,570||0%|
|Basic||£12,571 to £50,270||20%|
|Higher||£50,271 to £125,140||40%|
|Additional rate||over £125,140||45%|
How much tax does the average person pay?
The average person pays £4,038 per year in income tax, excluding national insurance contributions, given the average salary in the UK is £32,760. If we consider the personal allowance of £12,570, the remaining £20,190 is taxable pay, of which 20% is taxed since the taxable pay falls within the basic tax band.
On top of this, there is an additional deduction for National Insurance payments. This will depend on how much you earn and what category you are in.
How much tax does the top 10% pay?
If you are in the top 10% of earners, you will pay at least £12,465 in income tax per year, given that you must earn at least £62,583, according to external research.
This is because you pay the 40% rate of tax on the £12,312 that falls in the higher tax band, which equals £4924.80. You then pay 20% on the remaining taxable income over your personal allowance (£12,465 for the 2023/23 tax year), which is £37,701, meaning you pay £7540.20 income tax on that portion.
As above, you will also need to pay an additional amount for National Insurance.
How much does the UK government get from taxes?
In the 2021/2022 tax year, the government received £915 billion in tax revenue. The main component was income tax, responsible for £225 billion in revenue. However, National Insurance contributions and VAT combined contributed an additional £304 billion. The lowest contribution came from business rates, with only £22 billion.
|Tax Source||Tax Revenue (in billions)|
|National insurance contributions||£161|
|Tobacco and alcohol duties||£23|
UK tax spending breakdown
The majority of UK tax revenue is spent on health and welfare, making up nearly half (43.2%) of all expenditure at £216.8 billion and £194.2 billion, respectively. State pensions and education are the next biggest expenditures at £104.5 billion and £100.3 billion.
The UK pays around £72.8 billion in national debt interest and £48.6 billion in defense. Overseas aid accounts for around 0.6% of all tax expenditure, at only £5.5 billion. For a full UK tax spending breakdown, click the table below.
|Area||Public Sector Expenditure (in billions)||Percentage|
|National Debt Interest||£72.8||7.60%|
|Business & Industry||£51.8||5.40%|
|Public Order & Safety||£42.3||4.40%|
|Housing and utilities||£15.3||1.60%|
|Culture (e.g. sports, libraries, museums)||£12.8||1.30%|
|Outstanding payments to the EU||£6.5||0.70%|
How much tax is spent on the Royal Family?
The main source of income for the Royal Family from the government is the Soverign Grant, which cost the taxpayer £86.3 million in the 2021-22 financial year, up from £85.9 million in the 2020-21 financial year. This equals £1.29 per person in the UK.
Who doesn’t pay tax in the UK?
Most people in the UK get a personal allowance, which is £12,570 for 2023/2024. You are not taxed on any income up to this amount.
There are also various circumstances where Brits aren’t expected to pay any tax at all:
- If you receive income from a small business, the first £1,000 of income you earn is called a “trading allowance” and is tax-free.
- Similarly, the first £1,000 you make from subletting your property is tax-free.
- If you’re subletting a room using the Rent a Room Scheme, you don’t need to pay tax on the money earned from your lodger, up to a total of £7,500 per year.
- Profits made from ISA accounts are not taxed.
- Dividends from companies you’ve invested in are tax-free up to £1,000.
- State benefits like the housing benefit, income support and the disability living allowance aren’t taxed.
- Premium bonds and National Lottery winnings are also not taxed.
What is the tax gap?
In 2021, the tax gap was 5.1%, which was equal to around £32.1 billion. It has been around that mark for the past few years. The tax gap is the difference between total tax liabilities and total tax collected, and it is expressed as a percentage of total tax liabilities.
There are various reasons for this gap in taxes, including tax evasion, tax avoidance and hidden economies. However, for the most part, it is a failure to take reasonable care.
|Behaviour||Value (in billions)||Share of tax gap|
|Failure to take reasonable care||£6.1||19%|
- Commons Library
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