Tax receipts for the 2025/26 tax year have reached £860.7 billion, with one month of revenue collection still to come, according to HMRC. This marks a significant increase from £788.1bn over the same April to February period in the previous year. Despite this uplift, Government borrowing is rising again as public spending continues to grow.
Rising tax receipts mask deeper issues
The increase in tax revenue reflects a combination of frozen thresholds and sustained tax rises across the board. These measures are affecting not only businesses, but also employees under PAYE and the self-employed. As thresholds remain fixed, more individuals are drawn into higher tax bands, boosting income tax receipts without any formal rate increases.
At the same time, borrowing continues to climb. Higher interest rates are adding further strain, increasing the cost of servicing Government debt. External pressures are also building. The ongoing conflict in the Middle East is expected to push energy prices higher, further complicating the government’s fiscal position.
There is already growing political pressure to reconsider a planned fuel duty increase due in September. Keir Starmer recently stated that the Government would “keep the situation under review” in light of developments in Iran, signalling that policy adjustments may be on the table.
Strong gains across key tax areas
Several tax streams have delivered notable increases. Capital gains tax (CGT) receipts rose sharply, up 73% year on year to £19.7bn. However, it remains uncertain whether this level of growth will continue, particularly if asset markets begin to stabilise or slow.
VAT receipts have also climbed, reaching £170.6bn so far this year – an increase of £9.2bn, or around 5%, compared with the previous year. This reflects ongoing inflationary pressures, particularly in food and household costs, even before the recent rise in fuel prices linked to global tensions.
Business taxation continues to place a heavy burden on companies. Total business-related tax receipts have reached £97.5bn so far this year. Employer National Insurance contributions alone rose to £12.5bn in February, up from £9.8bn in the same month last year – a rise of around 20%. These increases underline the growing cost pressures facing employers.
Income tax and wealth taxes continue to climb
Income tax receipts have also increased, reaching £23.8bn in February, up 8% from £22.0bn in February 2025. Once again, frozen thresholds are a key driver, gradually pulling more taxpayers into higher bands and increasing the overall tax take.
Inheritance tax (IHT) continues to generate substantial revenue for the Treasury. So far this year, receipts have reached £7.7bn. Monthly figures, however, have remained relatively stable, with £614 million collected in February 2026 compared with £612m in the same month the previous year. There is still scope for the total to exceed the 2024/25 record of £8.9bn, particularly as intergenerational wealth transfers continue.
Ongoing pressure on taxpayers and planning
Despite the strong headline figures, the broader picture remains challenging. Rising tax receipts are not sufficient to offset increasing borrowing and spending commitments. At the same time, both individuals and businesses are facing higher effective tax burdens.
Proposed changes to pension taxation are adding another layer of complexity, particularly for those engaged in estate planning. As more assets fall within the scope of taxation, long-term financial planning is becoming increasingly difficult.
Overall, while tax revenues are rising sharply, they are not enough to close the public finance gap. With external pressures mounting and policy decisions still evolving, the outlook remains uncertain for both taxpayers and the wider economy.
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