Making Tax Digital is around the corner - it’s going to become a massive part of our organisation, and our accountancy courses too! So, we thought we would talk about everyone’s best friend, the Taxman and his favourite subject; a quick history of taxation in the UK.
I’m not sure who likes talking about taxes, certainly not me.
I think the only people who do are those living it up in tax havens, which by the way, we will be covering in a list very soon.
Believe it or not, taxes have been around since Medieval times when taxation was introduced as a system to raise money for royal and governmental expenses. A lot like how it is today, but probably less expenses scandals – that we know of anyway.
Land taxes were the main source of income through these means, in addition to custom duties and fees to mint coins. The most important tax of the Anglo-Saxon period was the danegeld, a sort of medieval insurance policy to protect against Viking raiders from ransacking land – in laymen’s terms, a protection racket.
Before the UK formed in the 18th century, many taxes were introduced:
Imagine being taxed for the number of windows you have. Well, in 1696 under William III, that became a thing, and it’s the origin of the term “daylight robbery”. It was a property tax based on the number of windows in a house: to avoid the tax some houses from the period have bricked-up windows which you can still see to this day. Window Tax was repealed in 1851, under King Edward III.
Your best friend, and mine, your friendly neighbourhood tax rate. The inception of income tax in the UK happened around 1799. The laws were introduced by Prime Minister William Pitt the Younger, who is the youngest Prime Minister in UK history. Pitt the Younger introduced income tax to pay for weapons and equipment for the French Revolutionary Wars. Income tax was levied from 1799 to 1802, when Henry Addington abolished it after taking over as Prime Minister in 1801 – then it was reintroduced in 1803 when things started kicking off with France again, then abolished again in 1816 after the battle of Waterloo.
We call this period of time “The Tax Hokey-Cokey”.
World War I
Fast forward just over 100 years or so, World War I started in 1914 and the allied forces were financed by borrowing, new taxes and rates of inflation. Taxation was the highest increase in revenue – with a 73% increase over the four-year span of the “the Great War”. For the record, World War I cost more money (a collective $337 billion) than any previous war in history. For Britain alone, the war cost over £3 billion.
Purchase Tax was introduced one year into World War II in 1940, however instead of being applied at the point of sale like most other taxes, it was introduced at the point of manufacture. Purchase tax lasted until 1973 when it was replaced by VAT.
Introduced in 1965 as part of the Finance Act 1965, which also brought the since-abolished capital gains tax. Corporation tax is taken on profits made by UK-based companies and on profits of entities registered overseas with permanent establishments in the UK. The 2016-2017 financial year saw corporation tax receipts hit a record high of £56 billion.
Maxing Tax Digital
The next stage in the cycle.
The UK government is planning to make it easier for individuals and businesses to get their tax records right, and one way they’re planning to do this is through Making Tax Digital. Last year, avoidable mistakes cost the exchequer £9 billion, so HMRC aims to become of the most digitally advanced tax administrators in the world.
Making Tax Digital will come into play on 1st April 2019 and is set to mark the beginning of the end of the tax return. Another step forward into the digital age and the technological evolution of business infrastructure.
What are taxes spent on?
To find a government breakdown of what your taxes are spent on, click here.