UK income tax History and information

UK income tax

Income tax is an annual tax reimposed each year in the annual Finance Act.

The British income tax has a number of bands: 10% (lower rate), 20% (basic rate for interest), 22% (basic rate), 32.5% (higher rate for UK dividends), and 40% (higher rate for other income). There are also a number of untaxed allowances to which tax bands do not apply.

An income tax is a tax levied on a financial income of persons, corporations or other legal entities. Various income tax systems exist, ranging from a flat tax to a progressive tax or graduated income tax system. A tax levied on income of companies is called corporate tax, corporate income tax or corporation tax. Individual income taxes generally tax the total income of an individual , while corporate income taxes often tax net income, the difference between gross receipts, expenses and additional writeoffs.

Income tax is a tax on earnings.

Tax rates may be progressive or flat.

Progressive: A progressive tax taxes differentially based on how much is earned. For example, the first $10,000 in earnings may be taxed at 5%, the next $10,000 at 10%, and any more income at 20%. The idea of a progressive income tax has garnered support from economists and political scientists of many different ideologies. Adam Smith alluded to progressive taxation in The Wealth of Nations. Smith argued "the expense of defending the society, and that of supporting the dignity of the chief magistrate, are both laid out for the general benefit of the whole society. It is reasonable, therefore, that they should be defrayed by the general contribution of the whole society, all the different members contributing, as nearly as possible, in proportion to their respective abilities." As an example of this, Smith advocated progressive tax upon modes of transportation, writing: "When the toll upon carriages of luxury, upon coaches, post-chaises, &c. is made somewhat higher in proportion to their weight, than upon carriages of necessary use, such as carts, waggons, &c. the indolence and vanity of the rich is made to contribute in a very easy manner to the relief of the poor, by rendering cheaper the transportation of heavy goods to all the different parts of the country."

flat tax: taxes all earnings at a same rate. The idea of flat taxes was promoted by Steve Forbes, of the Forbes business magazine. A tax system may use both progressive and flat systems. Historically, a flat tax was seen as an improvement over a status quo featuring lower, including zero, tax rates for the nobility and clergy. Such a situation in 18th century France was one of the causes of the French Revolution. Over the course of the 19th century, most European nations adopted flat taxes applicable to most incomes. The nations that have recently reintroduced flat taxes have done so in the hope of boosting economic growth. The Baltic nations of Estonia, Latvia and Lithuania have had flat taxes of 24%, 25% and 33% respectively with a tax exempt amount, since the mid- 90s. In the US , while the Federal income tax is progressive, five states — Illinois, Indiana, Massachusetts, Michigan and Pennsylvania — tax household incomes at a single rate, ranging from 3% (Illinois) to 5.3% (Massachusetts). Pennsylvania even has a pure flat tax with no zero-bracket amount.

A true income tax was first implemented in the UK by William Pitt the Younger in his budget of December 1798 to pay for weapons and equipment in preparation for Napoleonic wars. Pitt's new graduated income tax began at a levy of 2d in the pound (0.8333 per cent ) on incomes over £60 and increased up to a maximum of 2s (10%) on incomes of over £200. Pitt hoped that the new income tax would raise £10 million but actual receipts for 1799 totalled just over £UK 6 million.

In World War One income tax reached the unprecedented level of 30% with a surcharge on high incomes. In 1976 the standard rate was 35% and the highest rate on earned income was 83%, but there was a 15% surcharge on investment income which brought the top rate of tax to 98%. In the past few years, income tax has undergone massive changes.

Income tax was levied under 5 schedules—income not falling within those schedules was not taxed. The schedules were:

Schedule A (tax on income from UK land)
schedule B (tax on commercial occupation of land)
Schedule C (tax on income from public securities)
Schedule D (tax on trading income, income from professions and vocations, interest, overseas income and casual income)
Schedule E (tax on employment income)
Later a sixth Schedule, Schedule F (tax on UK dividend income) was added.

Finally, UK income tax was reintroduced by Sir Robert Peel in the Income Tax Act 1842. Peel, as a Conservative, had opposed income tax in the 41 general election, but a growing budget deficit required a new source of funds. The new income tax, based on Addington's model, was imposed on incomes above £150.

In 1998 the tac celebrated a 200th year. the tax man, was celebrating his 200th birthday. Marking the occasion, the Inland Revenue opened an exhibition at Somerset House to illustrate the history of income tax. The original legislation levied 10% on incomes above £200
Great Britain was the first country in the world to introduce the tax in 1798 when the country was losing the fight against the French in the Napoleonic wars.

Politics

In 2006 Sir Menzies Campbell unveiled a radical shift in the Lib Dems' approach to tax with a 2p cut in the basic rate. The £20bn cost of the cut would be partially met by a £7bn increase in "green" taxes on cars and flights.
In 2005 The Conservative assistant chief whip told the BBC there is more incentive to move from benefits to work if tax is not charged on low incomes, which could also relieve some bureaucratic costs. He set up a bill What his Income Tax (Earnings Exemption for Persons Living in Poverty) Bill seeked to do: Exempt tax for those earning 60% or less of the (median) average of disposable income; Those earning more than £15,000 would still be taxed according to existing rules
Increase government revenue by up to £1.62bn

In its 2006 budget, the Isle of Man's Treasury said it was to cut corporation tax to zero from April and cap income tax on the individual at £100,000.The Isle of Man's move is to increase competitiveness as a finance centre. Jersey's comptroller of income tax, Malcolm Campbell, said the island would not be following the move because it would mean too big a loss in revenue.

In 2001 The European Commission entered the British election debate by denying claims made by the Conservative Party that it is planning to harmonise income taxes across Europe. As long as I have anything to say in this area, harmonisation of income taxes is out Frits Bolkestein
The EU's commissioner with responsibility for taxation, Frits Bolkestein, could not have been more categorical So long as he had a say in the matter, he said, harmonisation of income taxes across the EU was out. Some say tax harmonisation would be good for Europe as it would enable a true single economy. Low tax campaigners might want there to be no tax harminisation as a free market in tax leads to competition to lower taxes to gain a comp. advantage.

The Lib Dems, who advocate a Local income tax

http://www.hmrc.gov.uk/

names for income tax in foreign nations

Einkommensteuer = Germany

Indkomstskat = Danish

Impôt sur le revenu des personnes physiques = France

Imposto de renda = Portugal

birthplace of Indian Presidents

http://www.theindiastockexchange.co.uk

http://www.theindiastockexchange.com

birthplace of British PMs

birthplace of Australian PMs