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Why are we paying income tax?

Well, one short answer is so that we could defeat Old Boney (Napoleon Buonaparte to those not on familiar terms with him).  The flow of revenue to the Exchequer was sorely strained by the Napoleonic wars and the usual forms of taxation were inadequate.  Previous forms of taxation were based on status, property, goods or products rather than income, the taxation of which would mean revealing one’s income to the Government.  What horror!

Among the more interesting ways of raising revenue were taxes on gloves, bricks, candles, windows, bachelors, soap, hair powder and hats.  These, of course, on top of the B feature film producers’  more dashing pictures of smugglers outwitting the Excise men as they landed ‘baccy and brandy on Chesil beach or Romney marsh, points within easy reach of France.  Gloveless bachelors under 25 who didn’t wash or powder their hair therefore made little contribution to the Treasury.

Of course some of these taxes created their own avoidance procedures, e.g. the owner blocked up the windows or built the house of wood.  The fashion for wigs died out in the face of the annual one guinea tax and black markets abounded.  A recent legal battle raged to decide whether a Jaffa cake was a cake or a biscuit to determine if it was subject to VAT.  Older readers will remember that purchase tax which preceded VAT was levied at different rates according to the position of the object on the scale between luxury and necessity.  Other taxes died a natural death because they cost more to collect than they raised, dog licences, for instance, which when finally abolished were still only 7s 6d a year (37.5p to younger readers).  Some were designed to alter working behaviour – think back to the Selective Employment Tax of the Sixties which imposed extra tax on frivolous occupations in order to make us all do something useful instead, so a tax on poledancers and no tax on bus conductors.  (Yes, we know poledancers didn’t exist then, just making the point.)

Like all temporary taxes, income tax drifted on with occasional lapses until it became part of our everyday life in 1944 when the modern PAYE system came into being.  Even then it was only paid by some 25% of the population, the rest being below the threshold at which tax started to be paid.  Nowadays anyone working 30 hours a week on national minimum wage will pay some tax.  Income tax has the advantage that it can be manipulated to ensure that the richest pay most tax both through the fact that those with more money will pay more anyway if you have a flat rate of tax, and by increasing the rate as they get richer than the Government thinks fair.  Thus the Chancellor can impose a higher rate of tax over certain thresholds.  Against this there are a range of reliefs and allowances designed (in theory) to make life simpler.  This generates more employment in the form of accountants and tax advisers to cope with the complications.  Which is why we print the byline below.

This article is by Tax Help for Older People (operated by registered charity no 1102276), offering free tax advice to older people on incomes below £17,000 a year. The Helpline number is 0845 601 3321 or geographical 01308 488066