Taxes in the UK: Where Does £857 Billion Actually Come From?

In the 2024/25 tax year, the UK government raised £857 billion in taxation. That is an almost incomprehensible sum of money — roughly £12,600 for every man, woman and child living in the country.

But where does it all come from? And who is actually paying it?

Understanding the anatomy of the UK tax system is not just an academic exercise. For landlords, self-employed individuals and anyone navigating their own tax affairs, knowing which taxes matter most — and why — is the foundation of making smart financial decisions.

The Big Three: Income Tax, NICs and VAT

Three taxes alone account for approximately 77% of all government tax revenue. Everything else — corporation tax, duties, inheritance tax, stamp duty — makes up the remaining quarter.

Income Tax (35% of total revenue)

Income tax is the single largest earner for the government, contributing around 35% of the total tax take. It is charged on:

• Salaries and wages from employment
• Rental income from buy-to-let and other property
• Interest from banks and building societies
• Dividends paid by companies
• Profits from self-employment

If you are a landlord or self-employed, income tax is almost certainly your biggest tax bill — which is exactly why Making Tax Digital for Income Tax (MTD ITSA) is such a significant piece of legislation. HMRC wants quarterly visibility of exactly this income stream.

National Insurance Contributions (21% of total revenue)

National Insurance contributions (NICs) — along with the Apprenticeship Levy — make up approximately 21% of total tax revenue, making them the second largest source of government income.

NICs are generally paid by both employers and employees on earnings from employment. Self-employed individuals also pay NICs on the profits of their trade, though at different rates.

For many self-employed people, NICs are a tax that quietly adds up — and one that is easy to underestimate when calculating take-home pay.

Value Added Tax (21% of total revenue)

VAT (including insurance premium tax) also accounts for around 21% of total government revenue. It is charged by businesses on supplies of goods and services across the UK, and ultimately passed on to the consumer.

Unlike income tax, VAT is largely invisible — built into the price of almost everything you buy. Yet its contribution to the public purse rivals National Insurance.

Corporation Tax: The Business Contribution (11%)

Corporation tax — including the bank levy, diverted profits tax and digital services tax — makes up approximately 11% of total government revenue. This is the tax paid by UK companies on their taxable profits.

It is worth noting that corporation tax only applies to companies. Sole traders and landlords pay income tax on their profits instead, not corporation tax.

Duties: The Everyday Sins (7%)

A large part of the remainder — around 7% — comes from duties. This includes:

• Alcohol duty
• Fuel duty (petrol and diesel)
• Tobacco duty
• Tariffs on goods imported into the UK
• The soft drinks industry levy

These are sometimes called "sin taxes" — levies designed both to raise revenue and to discourage behaviour the government considers harmful. Whether they achieve the latter is a debate for another day.

The Remaining Slice: Capital and Green Taxes

The final portion of the tax take comes from two broad categories:

Capital taxes include capital gains tax (CGT), inheritance tax (IHT), stamp duty (SD), stamp duty land tax (SDLT) and the Annual Tax on Enveloped Dwellings (ATED). For property owners in particular, CGT and SDLT are taxes that can significantly affect investment decisions.

Green taxes include the aggregates levy, climate change levy, plastic packaging tax and air passenger duty — all designed to price in the environmental cost of certain activities.

What This Means for You

If you are self-employed or a landlord, the tax landscape can feel overwhelming. But strip it back and the picture is actually quite simple: income tax is the number one tax you need to manage. It is the biggest earner for the government, and it applies directly to your profits and rental income.

That is why upcoming changes like MTD ITSA matter so much. From April 2026, many landlords and self-employed individuals will be required to report their income to HMRC quarterly — not just once a year in January.

At Pocket Tax, we are building software specifically designed to make this as painless as possible. If you want to be part of our founding users group and get early access, join our waiting list today.