A history of Income Tax in the UK
Income Tax was the first tax in British history to be levied directly on people’s earnings. It was introduced in 1799 by Prime Minister William Pitt the Younger, as a temporary measure to cover the cost of the Napoleonic Wars.
Today, it remains a temporary tax, which expires on April 5 each year, and has to be renewed as a provision in the annual Finance Bill. The Provisional Collection of Taxes Act 1913 permits the Government to continue to collect Income Tax for up to four months after the expiry of the measure, until the Finance Bill becomes law .
Income Tax was formally revoked in 1816, but it was reintroduced in 1842 by Sir Robert Peel in order to deal with a massive public deficit. At this time, it was levied only on the very rich, and it remained so for many years. In 1874, it contributed only £6 million of Government revenues of £77 million.
Income Tax was extended to a larger proportion of the population. It’s rates increased again in 1945, to pay for the Second World War effort. The current PAYE) system, for deducting tax at source was introduced in 1944. This replaced the previous system of annual or six-monthly collection. The “tax code”, telling employers the proportion of income to be deducted, and the P45 form was introduced alongside PAYE.
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