Income tax today

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"It's been tried mate!"
Courtesy of The Mirror Group

Bicentenary of Income Tax

The sixty plus years since World War II have seen greater social and economic changes than any other comparable period. The National Health Service was introduced in 1948, and the phrases ‘Welfare State’ and ‘cradle to grave’ began to be used to reflect a wide range of social provisions including broader national insurance provisions, the introduction of child allowances, the raising of the school-leaving age and increased old age pensions. Many of these provisions were based on the Beveridge Report of 1942.

Reflecting society, income tax provisions have changed too.

To avoid double taxation arising in one country to residents of another, special arrangements have been in place within the British Empire from 1916. The first agreement with a non-Empire country was with the United States in 1945. Britain now has more agreements with other countries than any other nation.

Corporation Tax on company profits and Capital Gains Tax on long-term gains were introduced by Chancellor James Callaghan in 1965. Callaghan - later Prime Minister and now Lord Callaghan - had previously been an Inland Revenue employee and trade unionist.

Value Added Tax - replacing purchase tax - was introduced in 1973 to be collected by Customs and Excise. William Pitt may have applauded it over income tax because the individual can regulate how much is paid. He or she can simply not buy that item or so many of them - and food, children’s clothes and books and newspapers are zero-rated.

Surtax - introduced as super-tax by Lloyd George in 1909 and attacked in Beatle George Harrison’s ‘Taxman’ (Let me tell you how it will be, there’s one for you nineteen for me. ’Cause I’m the taxman) - was removed in 1973, but replaced by higher rates of income tax for those with high incomes.

Since 1990, a married woman has been taxed independently on her own income with her own personal allowance. The fight for equality in tax had begun with the Married Women’s Property Act of 1882.

In 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.

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%.

 

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