Income tax is used to pay for state provided services, like education and healthcare. The amount deducted is based on the amount of income you receive, with the idea that everyone pays their fair share to support the United Kingdom and the services provided. Not all income is taxable and personal allowances mean that you only pay tax on a specified portion of your income.
When did income tax start
Income tax was first introduced in 1798 to help with the cost of the French Revolution. The tax came in to force in 1799 to pay for the war, as Britain’s resources had been drained and the national debt had increased to a significant amount. The tax was introduced by William Pitt, who was the Chancellor of the Exchequer and Prime Minister from 1783 and was initially a temporary measure to ‘aid and contribution for the prosecution of the war.’
The tax was deducted at the rate of 10 per cent on income above £60 a year, paid in six instalments. The tax collected came to around £6 million. Henry Addington became Prime Minister in 1802, introducing Addington’s 1803 Act, which is the basis for today’s income tax. The tax could be collected in a fair manner to raise revenue for Britain.
The return of income tax
Although income tax had briefly been repealed, it made a return in1842, under the leadership of Sir Robert Peel. Only those with an income above £150 were taxed, so the poor people benefited and trade made a healthy recovery. The tax was a temporary measure and was initially introduced for three years, with a possibility of being extended for two years.
Becoming HMRC
The Board of Inland Revenue was introduced in 1849 when the Board of Excise was added to the Board of Stamps and Taxes. Excise moved from the Inland Revenue to the Board of Customs in 1909. In 2005, the Inland Revenue joined forces with HM Customs & Excise to become HM Revenue & Customs.
PAYE
Pay As You Earn was introduced in 1944 as a fairer and more efficient means of collecting tax. The system was first introduced by Chancellor of the Exchequer Sir Kingsley Wood in 1940 – 41 as a pilot scheme. By January 1944, 15 million people were enrolled in the PAYE scheme, people who were earning more than £100 a year.
Today, the scheme has been modernised to cope with changing employment patterns. It is still viewed by many as a fair method of collecting taxes, governed by inspectors of taxes, as it was many years ago.