A great history of it here:
http://answers.yahoo.com/question/index?qid=20090331082300AAooHuM
Income Tax was announced in 1798, and introduced in 1799, as a means of paying for the war against the French forces under Napoleon. France was threatening to invade, and had already landed briefly in Wales and Ireland. For much of his campaigns from 1795, Napoleon was better organised than the British forces. The cost of war had drained Britains resources, and run up a considerable national debt. The army was starving, and poor conditions in the navy in 1797 had led to mutiny.
William Pitt the Younger was Prime Minister and Chancellor of the Exchequer from 1783, and needed greater aid and contribution for the prosecution of the war.
Certain duties upon income as outlined in the Act of 1799 were to be the (temporary) solution. It was a tax to beat Napoleon. Income tax was to be applied in Great Britain (but not Ireland) at a rate of 10% on the total income of the taxpayer from all sources above £60, with reductions on income up to £200.
It was to be paid in six equal instalments from June 1799, with an expected return of £10 million in its first year. It actually realised less than £6 million, but the money was vital and a precedent had been set.
In 1802 Pitt resigned as Prime Minister over the question of the emancipation of Irish catholics, and was replaced by Henry Addington. A short-lived peace treaty with Napoleon allowed Addington to repeal income tax. However, renewed fighting led to Addingtons 1803 Act which set the pattern for income tax today.
Significant change
Addingtons Act for a contribution of the profits arising from property, professions, trades and offices (the words income tax were deliberately avoided) introduced two significant changes:
Taxation at source - the Bank of England deducting income tax when paying interest to holders of gilts, for example
The division of income taxes into five Schedules - A (income from land and buildings), B (farming profits), C (public annuities), D (self-employment and other items not covered by A, B, C or E) and E (salaries, annuities and pensions).
Although Addingtons rate of tax was half that of Pitts, the changes ensured that revenue to the Exchequer rose by half and the number of taxpayers doubled. In 1806 the rate returned to the original 10%.
Pitt in opposition had argued against Addingtons innovations: he adopted them almost unchanged, however, on his return to office in 1805. Income tax changed little under various Chancellors, contributing to the war effort up to the Battle of Waterloo in 1815.
Nicholas Vansittart was Chancellor when Napoleon was defeated. His inclination was to maintain some tax on income, but public sentiment and the opposition were against him. A year after Waterloo, income tax was repealed with a thundering peal of applause and Parliament decided that all documents connected with it should be collected, cut into pieces and pulped.
The critics of income tax had won the day, but experience had proved that it was a practical means of raising revenue, that it could be applied fairly, and that concerns about invasion of privacy were largely misplaced. The critics were also frustrated in the destruction of the records, unaware that duplicates had already been sent to the Kings Remembrancer.
The mid-1800s saw the beginnings of significant social and economic change. With the Whigs (forerunners of the Liberals) in power from 1830, child labour was limited, slavery in the Empire ended, and Parliamentary reform gave representation to cities including Manchester and Liverpool, and to more of the middle classes. Railways transformed communications within England and linked Scotland, Wales and - via Holyhead - Ireland. The potato famine in Ireland began in the mid-1840s.
The general election of 1841 was won by the Conservatives with Sir Robert Peel as Prime Minister. Although he had opposed income tax, an empty Exchequer and a growing deficit gave rise to the surprise return of the tax in his 1842 Budget. Peel sought only to tax those with incomes above £150, and he reduced customs duties on 750 articles out of a total number taxed of 1,200. The less wealthy benefited, and trade revived as a consequence.
Peels income tax was imposed for three years, with the possibility of a two year extension. A funding crisis in the railways and increasing national expenditure ensured that it was maintained. For Peel, the debate was academic. In 1846 he repealed the Corn Laws - which supported farmers by inflating the price of corn when cheaper imports were available - and lost the support of much of his party. The Whigs resumed power the same year to be joined by some notable Peelites.
A temporary tax
Income tax is still a temporary tax - it expires each year on 5 April and Parliament has to reapply it by an annual Finance Act. For up to four months until the Finance Act becomes law, the Provisional Collection of Taxes Act 1913 ensures that taxes can still be demanded.
How are you today?
