On this day in history : 9th January 1799 – Income Tax is introduced to Britain by Prime Minister William Pitt the Younger…. It is established to raise money for the Napoleonic Wars and is meant to be a temporary measure….
Believe it or not, it is still a ‘temporary’ measure….expiring each year on the 5th of April and having to be renewed as a provision in the annual Finance Bill….
Income Tax was implemented by Pitt the Younger in his December 1798 budget – to pay for weapons and equipment for the forth-coming war with France…. It was a complicated taxation system, taking into consideration property owned, land, profession and finally income…. It was based on a flat rate but varied depending on whether the Country was at war or not…. On its introduction incomes over £60 per annum were levied at 2 old pence in the pound – whereas incomes over £200 were required to pay 2 shillings in the pound (or 10%)…. The government had hoped to raise £10 million but in fact only realised £6 million….
Henry Addington abolished the tax in 1801 – during the ‘Peace of Amiens’ – but it was to be short-lived, as it was reintroduced again in 1803 when hostilities with France flared up once more…. It was also at this time that Addington introduced deduction at source….
Income Tax was repealed in 1816, a year after the Battle of Waterloo – and for a while Britain enjoyed an Income Tax free period…. However, in 1842 Sir Robert Peel, faced with an enormous public deficit of 63% as a result of the Crimea Conflict, reintroduced it…. Admittedly it was only for the wealthy, those earning more than £150 per annum – and was only 3d in the £1 (3%) – and it remained this way for many years….
At the beginning of the 20th Century there were less than a million tax payers in Britain…. In 1907 Herbert Asquith introduced a whole new range of taxes….by 1909 Income Tax had raised to 8% and a new ‘Super Tax’ or ‘Surtax’ was introduced for the wealthy…. (This was to stay in place until 1973 – when it was replaced by the Higher Rate of Income Tax)….
World War 1 saw an increase in the rate to over 50%….but by 1918 it had settled back down to 30% – but more people were having to pay…. By 1930 ten million people had become eligible for Income Tax….and by the start of World War 2 that number had risen to twelve million….
In 1944 Pay As You Earn (PAYE) was introduced (previously tax would be paid every 6 months – or even annually)…. Along with PAYE came the P45 – and tax codes, to tell employers what percentage to deduct…. A basic rate of 33% remained in place after the war – and it wasn’t until Margaret Thatcher came to power that we saw a reduction….when it was lowered to 25% – and the Higher Rate from 83% to 40%…. It was lowered again to 22% and Gordon Brown then reduced it even further to 20%…. But of course, they always get us in other ways!