1798 – Income Tax first announced
1799 – William Pitt the Younger first introduced Income Tax. ‘Certain duties upon income’ as outlined in the Act of 1799, were to be the (temporary) solution for funding problems from the war against Napoleon. It was applied to Great Britain (but not Ireland) at a rate of 10% of the total income of the taxpayer from all sources above £60, with reductions on income up to £200. It was to be paid in 6 equal instalments from June 1799, and expected a return of £10 million in its first year. It actually only raised less than £6 million.
1802 – Pitt resigns as Prime Minister, replaced by Henry Addington. A short-lived peace treaty with Napoleon allowed Addington to repeal income tax.
1803 – Renewed fighting with Napoleon led to Addington’s 1803 Act which sets the platform for income tax today. There were two significant changes: The Bank of England started deducting income tax when paying interest to holders of gilts, for example. The second change was the division of income taxes into 5 different ‘schedules’ – A (income from land and buildings), B (farming profits), C (public annuities), D (self-employment and other items not covered by A,B,C or E) and E (salaries, annuities and pensions). Although Addington’s rate of tax was half that of Pitt’s, the changes ensured that revenue to the Exchequer rose by half and the number of taxpayers doubled.
1806 – Income tax returned to the original rate of 10%
1816 – A year after the Battle of Waterloo, income tax was repealed ‘with a thundering peal of applause’, and parliament decided that all documents connected with it should be collected, cut into pieces and pulped. Critics were frustrated regarding the destruction of the documents, unaware that duplicates had already been sent to the King’s Remembrancer.
1833 – The Board of Taxes and the Board of Stamps (controlling duties paid on documents on which house transactions, for example, are recorded) were combined in the Board of Stamps and Taxes.
1842 – The conservatives, under Sir Robert Peel, won the election of 1841, and although he had opposed the income tax, an empty Exchequer and a growing deficit gave rise to the surprise return of the tax in his 1842 budget. Peel sought only to tax those with incomes above £150, and he reduced custom duties on 750 articles out of a total number taxed of 1,200. The less wealthy benefited, and trade revived as a consequence.
1849 – The Board of Excise was added to the Board of Stamps and Taxes to create the new Board of Inland Revenue.
1853 – The new prime minister, from the ‘Whigs’ party (from 1868 onwards known as the liberals), spoke for nearly 5 hours in his 1853 budget. He outlined plans for phasing out income tax over 7 years (which was later upset by the Crimean War), of extending the tax to Ireland, and introduced tax deductions for expenses ‘wholly, exclusively and necessarily’ incurred in the performance of an office – including keeping and maintaining a horse for work purposes. The 1853 budget speech included a review of the history of the tax and it’s place in society, and it’s regarded as one of the most memorable budget speeches ever made.
1907 – Chancellor Herbert Asquith introduced the long-debated concept of ‘differentiation’ – taxing less on earnings than on investments.
1908 – After Asquith’s elevation to Prime Minister, Lloyd George as Chancellor introduced non-contributory old-age pensions.
1909 – In the ‘People’s Budget’ of 1909, Lloyd George detailed plans of a super-tax for the rich, which was rejected by the House of Lords. This led to the 1911 Parliament Act which removed the Lord’s power of veto. Also, the Excise Department moved from the Inland Revenue to the Board of Customs.
1918 – At the start of the war, the standard rate of income tax was 6%, which produced an income to the Exchequer of £44 million with a further £3 million in super-tax. By 1918, the standard rate had risen to 30%, realising £247 million with £36 million more in super-tax. Increases in personal allowances eased the burden in part for taxpayers. In addition to these taxes, an Excess Profits Duty was introduced to raise revenue and to remove the excessive profits that firms had made from the war effort. With this and other tax changes, the total collected rose to over £580 million – seventeen times the 1905 figure!
1920 – A royal commission was set up to ‘enquire into the income tax (including super-tax) in all it’s aspects. After 50 sittings and the examination of 200 witnesses, the 100,000 word report proposed changes in detail, but concluded that ‘as it was in 1842, so in it’s essential features should it remain’.
1939 – In 1939, the standard rate of income tax was 29% with surtax at 41% for incomes over £50,000. Ten million people were liable for tax, and the total sum raised was £400 million.
1944-45 – PAYE (Pay As You Earn) was introduced in 1944 as a way to create a more efficient tax system. In place of annual or twice-yearly collections, tax was deducted by employers from wages, and an employer leaving work was given a P45 recording his or her code number, pay to date and tax paid to pass on to their new employer. Also, successive increases in rates and lowering of allowances led to 1944-45 figures of 50%, surtax at 48% for incomes over £20,000, fourteen million taxpayers, and nearly £1,400 million raised. An Excess Profits Tax introduced for business raised further revenue (£508 million in 1944-45). It compared war-time profits with pre-war, or ‘standard’, profits, taxing the difference initially at 60% and then at 100%.
1946 – Excess Profits Tax repealed.
1965 – Corporation Tax on company profits and Capital Gains Tax on long-term gains were introduced by James Callaghan. Callaghan, later Prime Minister, had previously been an Inland Revenue employee and trade unionist.
1973 – Value Added Tax, replacing purchase tax, was introduced in 1973, to be collected by Customs and Excise. Also, Surtax, introduced by Lloyd George in 1903, was removed in 1973, but replaced by higher rates of income tax for those with high incomes.
1990 – Since 1990, a married woman has been taxed independently on her own income with her personal allowance. The fight for equality in tax had begun with the Married Women’s Property Act of 1882.
1992 – Her Majesty the Queen elected to pay tax on her income, a move designed to bring the monarchy closer to the people. Queen Victoria had also paid income tax for a time after its reintroduction in 1842.
Did you know: Special rates have been introduced twice within the post-war years, causing income tax in certain circumstances to exceed 100%!
- For 1947-48 a special contribution was payable when a person’s total income exceeded £2,000. For investment income over £5,000 it was 50%. So with income tax at 45%, and surtax at 52.5%, the effective rate was 147.5%.
- In 1967-68, the special charge was imposed. For investment income over £8,000, the rate was 45% which – with income tax at 41.25% and surtax at 50% - meant a total rate of 136.25%.
If you would like to know more about Income Tax, and how to reduce your personal tax liability, we have lots of helpful Tax Kits. Just click here to learn more about them!