Where does our tax money go?

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.

Quick overview

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.

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Tax year	Total number of income tax payers (in millions)
2018/2019	31.6
2019/2020	31.4
2020/2021	31.7
2021/2022	32.2

How much is income tax in the UK?

Tax band	Income	Rate
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.

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Tax Source	Tax Revenue (in billions)
Income tax	£225
National insurance contributions	£161
VAT	£143
Corporation tax	£68
Capital taxes	£41
Council taxes	£40
Fuel duty	£26
Tobacco and alcohol duties	£23
Business rates	£22
Other	£165
Total	£915

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.

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Area	Public Sector Expenditure (in billions)	Percentage
Health	£216.8	22.80%
Welfare	£194.2	20.40%
State Pensions	£104.5	11.00%
Education	£100.3	10.50%
National Debt Interest	£72.8	7.60%
Business & Industry	£51.8	5.40%
Defence	£48.6	5.10%
Transport	£45.2	4.70%
Public Order & Safety	£42.3	4.40%
Government Administration	£21.9	2.30%
Housing and utilities	£15.3	1.60%
Environment	£13.9	1.50%
Culture (e.g. sports, libraries, museums)	£12.8	1.30%
Outstanding payments to the EU	£6.5	0.70%
Overseas Aid	£5.5	0.60%

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.

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Behaviour	Value (in billions)	Share of tax gap
Failure to take reasonable care	£6.1	19%
Criminal attacks	£5.2	16%
Non-payment	£4.9	15%
Evasion	£4.8	15%
Legal interpretation	£3.7	12%
Hidden economy	£3.2	10%
Error	£3.0	9%
Avoidance	£1.2	4%

Sources used

ONS
Gov.uk
Commons Library

In the UK, anyone who earns more than £12,570 during the 2022/2023 financial year should pay income tax (though it’s worth being aware of the tax-free interest you would earn through an ISA). For those who do, it might feel like you’re losing money every month without knowing where it’s going.

That’s why we’ve looked at where the UK’s tax revenue comes from and how this money is distributed. In 2020/2021, it was estimated that the government’s public spending would total £928 billion, with the most being spent on social protection at £285 billion.

Taxpayers in the UK

HM Treasury calculated that in 2018/2019, 31.4 million Brits paid income tax, a record high since 1975. This is because unemployment rates were historically low, with only 4% of the UK’s population out of work.

Region	2017/2018	2018/2019	2019/2020	2020/2021
West Midlands	2,600,000	2,630,000	2,600,000	2,660,000
East Midlands	2,210,000	2,240,000	2,220,000	2,300,000
Yorkshire and the Humber	2,440,000	2,470,000	2,440,000	2,500,000
North West	3,290,000	3,320,000	3,290,000	3,370,000
North East	1,150,000	1,160,000	1,140,000	1,160,000
East of England	3,050,000	3,080,000	3,060,000	3,180,000
London	4,230,000	4,290,000	4,260,000	4,340,000
South East	4,680,000	4,730,000	4,700,000	4,790,000
South West	2,730,000	2,770,000	2,740,000	2,850,000
Wales	1,380,000	1,400,000	1,380,000	1,390,000
Scotland	2,600,000	2,630,000	2,600,000	2,630,000
Northern Ireland	740,000	747,000	739,000	789,999

How is income tax calculated?

Each financial year runs from April to April, so when calculating tax, you should always count April as the first month and March as the last. Each year, HM Treasury considers the value of the pound as well as the cost of living when setting tax limits and thresholds, which means that these tend to differ every year. This is to ensure that they are set at a fair level.

The personal allowance (tax-free income) in 2020/2021 was the same as the previous year at £12,500. This was 5.5% higher than it was in 2018/2019 (£11,851).
A basic tax rate of 20% applies to everyone who earns between £12,501 and £50,000. This upper limit is 7.9% higher than it was in 2018/2019 (£46,351).
If you make more than £50,000 in 2020/2021, you qualify for the higher rate threshold, which means that you need to pay 40% tax on any income you earn over this amount.
If you make over £125,140 per year, you’ll pay an additional rate of 45% tax on any income you earn over this amount, which remains unchanged from last year.

£306.97 per month

is the amount of tax paid by someone on a £30,918 salary (the UK’s average annual wage in 2019).

What else do we pay tax on?

But it’s not just our income that’s taxed to pay for services like schools and hospitals. Here’s a list of things that we all pay tax on every day:

National insurance
Pensions and savings tax
Property and council tax
Transport tax (fuel duty, vans, company vehicles, etc)
Energy tax
Environmental tax (single-use plastics, plastic packaging)
Indirect tax (alcohol, tobacco and gaming)
Value added tax (VAT)

So how much tax revenue does the UK make?

Overall, it’s been calculated that tax revenue will total £873 billion in 2020/2021, £63 billion more than in 2019/2020 (£810 billion). The biggest increase in revenue is expected to come from “other non-taxes”, which includes interest and dividends, gross operating surplus and other smaller non-tax receipts. Other non-taxes is estimated to increase by 61% this tax year, from bringing in £54 billion in 2019/2020 to £87 billion in 2020/2021.

HM Treasury expects £15 billion more this year (+8%) from income taxes and £5 billion more (+3%) from VAT taxes. Revenue from national insurance contributions will also increase by 6%, from £142 billion to £150 billion.

Tax revenue 2020/2021

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Revenue source	Income
Income tax	£208 billion
VAT	£161 billion
National insurance contributions	£150 billion
Other taxes	£91 billion
Other non-taxes	£87 billion
Corporation tax	£58 billion
Excise duties	£48 billion
Council tax	£38 billion
Business rates	£32 billion

Tax revenue 2019/2020

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Revenue source	Income
Income tax	£193 billion
VAT	£156 billion
National insurance contributions	£142 billion
Other taxes	£89 billion
Corporation tax	£60 billion
Other non-taxes	£54 billion
Excise duties	£50 billion
Council tax	£36 billion
Business rates	£31 billion

Tax revenue 2018/2019

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Revenue source	Income
Income tax	£185 billion
VAT	£145 billion
National insurance contributions	£134 billion
Other taxes	£89 billion
Corporation tax	£55 billion
Other non-taxes	£51 billion
Excise duties	£49 billion
Council tax	£34 billion
Business rates	£30 billion

Where does the money go?

Public spending is expected to be £928 billion, £86 billion more than last year (£842 billion). This is £55 billion more than what the tax revenue will be this year, meaning that the HM Treasury has planned to use more money than what it has coming in. This is most probably due to COVID-19 and the cost of covering the NHS, as well as other help packages that the government has created to help the Brits and companies stay afloat.

This year, the biggest spend increase will be on net debt interest, which will see a 30% increase from £43 billion in 2019/2020 to £56 billion in 2020/2021. The biggest spending overall will be on social protection, which will get £285 billion to work with this year, £29 billion more than last year.

Public spending 2020/2021

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Area	Amount spent
Social protection	£285 billion
Health	£178 billion
Education	£116 billion
Other (including EU transactions)	£58 billion
Net debt interest	£56 billion
Defence	£55 billion
Transport	£44 billion
Public order and safety	£38 billion
Personal social services	£36 billion
Housing and environment	£32 billion
Industry, agriculture and employment	£30 billion

Public spending 2019/2020

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Area	Amount spent
Social protection	£256 billion
Health	£166 billion
Education	£103 billion
Defence	£52 billion
Other (including EU transactions)	£52 billion
Net debt interest	£43 billion
Transport	£37 billion
Public order and safety	£35 billion
Personal social services	£34 billion
Housing and environment	£32 billion
Industry, agriculture and employment	£25 billion

Public spending 2018/2019

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Area	Amount spent
Social protection	£252 billion
Health	£155 billion
Education	£102 billion
Other (including EU transactions)	£53 billion
Defence	£49 billion
Net debt interest	£41 billion
Transport	£35 billion
Public order and safety	£35 billion
Personal social services	£32 billion
Housing and environment	£31 billion
Industry, agriculture and employment	£23 billion

Tax money during the coronavirus pandemic

The UK government has stepped up with financial help for companies and individuals in need during the coronavirus crisis. Here are some of the helpful actions that the government has taken to help:

Guaranteed business loans

The government made an initial £330 billion available to help struggling businesses.

Public services support

£30 billion was added to support public services such as the NHS, individuals and businesses.

The Hardship Fund

The government increased “The Fund” by 1,000% in April 2020 to help those in need. During the normal tax year, The Fund has £500,000 to help very low paid workers who are temporarily out of work as a result of crime. Since the effects of COVID-19 have been increasing the number of those without a steady income, £500 million have been made available to help provide council tax relief to those who need it the most.

Mortgage or rental holiday

To avoid evictions during the crisis, homeowners and tenants can apply to take a break from their rent and mortgage payments for three months.

Statutory Sick Pay (SSP)

Normally, when an employee takes a leave of absence due to sickness, the employer pays Statutory Sick Pay (SSP) to the employee for up to 28 weeks. If you run a small or medium-sized business and one of your employees needs SSP, you might be eligible to reclaim the costs.

Business Rates bill

Those who run a small business pay the Business Rates bill, which is a tax on the property. During the COVID-19 crisis, owners will get a revised bill with 100% relief. Those who are nursery owners will be entitled to a 100% relief for the next year.

Retail, hospitality and leisure sector grant

Those who own a business within retail, hospitality or leisure will get a cash grant of at least £15,000, up to £25,000, depending on the value of their property. If you own any of these businesses and need a loan for up to £5 million, the loan will be interest-free for the first six months.

Tax relief

Those who are self-employed or own a business can apply for tax relief. This way, the money can instead be put back into the business to help make up for the lack of customers and sales.

When don’t we pay tax?

There are a variety of circumstances in which 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 also not taxed.
Dividends from companies you’ve invested in are tax-free up to £500.
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.

The tax gap

Every year, HM Treasury works out roughly how much should be paid in taxes. Then at the end of the year, it calculates how much was actually paid. So, why is the amount of tax that’s actually paid lower than the amount that should be paid? This comes down to a number of factors, including criminality, evasion and tax avoidance.

There are also less nefarious reasons for the tax gap, as taxpayers may mistakenly report the wrong amount on which they will be paying tax in the coming year. In 2017/2018, the tax gap was £35 billion pounds, which makes up 5.6% of all tax liabilities. The £35 billion that was missing in 2017/2018 was made up of £14 billion missing from small businesses, £4.9 billion due to criminal activity and £3.9 billion missing from individual income tax.