HMRC tax receipts pass £900bn: What it really means for the UK economy and for business

On the surface, this looks like a strong end to the year for the Chancellor, Rachel Reeves. But dig a little deeper, and the figures reveal a more complex and potentially challenging picture for businesses and individuals alike.

A record-breaking tax take

The headline figure is unambiguous: tax receipts are up 6.7% on the previous 12 months and have now crossed the £900bn threshold.

Tom Goddard, Senior Associate, explains:

As 2025 draws to a close, the Chancellor may feel a sense of optimism going into the New Year. HMRC’s latest statistics show tax receipts are up 6.7% on the last 12 months and have now surpassed the £900bn mark for a 12-month period (with this expected to increase as the January filing deadline for self-assessment tax returns spur the nation into parting with their cash).

For the Treasury, this represents a welcome boost to public finances at a time when fiscal headroom remains limited. For taxpayers, however, it is a reminder of how much more is being absorbed by the system, often without explicit tax rate rises.

Where the increases are coming from

Other significant increases come from National Insurance Contribution (NIC) receipts, up 10.32% (this is before any changes to NIC on salary sacrificed pension payments) and Stamp Duty Land Tax (SDLT) up 20.47% over the last 12 months. For SDLT that is a £2.5bn increase, taking total receipts in the last 12 months to £15.2bn, which is not an insignificant sum in tax takings. It puts into question Kemi Badenoch’s party conference pledge to abolish it and where she might otherwise generate such funds for the country.

For businesses, rising NIC receipts reflect higher employment costs and wage inflation. For individuals, particularly those moving home, the scale of SDLT revenues underlines just how embedded the tax has become in government funding – making meaningful reform politically and fiscally difficult.

Strong revenues, weaker fundamentals?

Despite the healthy tax take, figures released this week show unemployment rising to 5.1% and Government borrowing in the fiscal year to date was up to £132.3bn (an 8% increase on the same 8-month period in 2024). This will give the Government more to think about especially when it comes to public finance expenditure and increased unemployment will hit tax takings on income tax and NIC going forward.

This creates a tension at the heart of fiscal policy: today’s strong receipts may not be sustainable if employment weakens further, while higher borrowing limits the scope for tax cuts or spending increases.

The quiet driver: fiscal drag

We also know that increased tax takings are driven less so by economic prosperity, but instead by the concept of fiscal drag. A theme all recent Chancellors have been happy to capitalise on, and in fact Rachel Reeves did so by further expanding the freeze on income tax thresholds to April 2031.

For individuals, this means higher effective tax rates without headline changes. For employers, it can add pressure to salary negotiations as employees feel worse off despite nominal pay rises.

What this means going into 2026

The Chancellor may be enjoying a seasonal boost to the public purse, but the challenges ahead are clear.

Tom concludes:

While the Chancellor sips her sherry by the fire, the increased tax takings reported by HMRC may be the turkey for her Christmas dinner, but she mustn’t forget the trimmings of controlling borrowing and cutting unemployment when she makes her New Years resolutions!

Sustaining revenues while supporting growth, employment and business investment will require careful balancing and difficult decisions.

What you should consider / do next

Review exposure to fiscal drag: Individuals and business owners should reassess tax planning strategies, particularly around income levels, bonuses and pension contributions.

Factor rising employment costs into budgets: With NIC receipts increasing, employers should model the long-term impact of payroll taxes on workforce planning.

Monitor policy signals ahead of future Budgets: Strong receipts may reduce pressure for immediate tax rises, but weak fundamentals could still drive targeted changes.

Seek proactive advice: Understanding how these trends affect your personal or corporate tax position can help mitigate surprises and identify planning opportunities.

Would you like to know more?

If you would like to discuss any of the above, please speak to your usual Blick Rothenberg contact.