An Enlightened Approach To Taxpayer Confidentiality: The Story Of The First Income Tax

• Published date: 18 May 2021
• Subject Matter: Tax, Income Tax
• Law Firm: Wilberforce Chambers
• Author: Mr Paul Newman QC

Confidentiality is a fundamental concept at the heart of the modern taxation system. The need to strike a balance between the taxpayer's right to privacy and the requirement of HMRC to carry out its functions has been the subject of much legislation and litigation.¹ There has been an explosion in the exchange of information between revenue authorities of different countries and British politicians have for years been under pressure to emulate the tradition of American presidents publishing their tax returns. But there is nothing new under the sun: the introduction of income tax in Britain at the end of the 18^th century was dominated by concerns over taxpayer confidentiality, which led to measures being developed which have left their mark on today's income tax system.

One of the principal objections to the introduction of the mandatory payment of income tax by Pitt the Younger in 1799² was the fear that it would lead to the public disclosure of taxpayers' financial circumstances. This went against the grain of the independently minded Briton, seeking to protect their property from the consequences of revolution in France and rebellion in Ireland, and to safeguard their standing in society and in commerce: in an age of patronage and credit, what a person appeared to be was as important as what they actually were. Pitt accordingly built into the first income tax legislation provisions designed to maintain confidentiality - or 'secrecy' as it was then known.

The need to protect the taxpayer from disclosure led to the tax being implemented by self-assessment, only requiring the taxpayer to declare a sum which represented not less than 10% of their income;³ and the declaration was to be made to a body known as the Commissioners,⁴ who were persons of wealth, integrity and independence rather than mere officials, in whom the taxpayer could safely repose their trust, particularly as the Commissioners were required to swear an oath of secrecy.⁵

To provide further protection for commercial income, a specialist tribunal was established to deal with their affairs: the Commercial Commissioners, chosen by and from the commercial community. The system of self-assessment here, too, was designed to ensure secrecy: any person or company engaged in any trade or manufacture could be assessed to tax, either as to their entire income or as to that part arising from trade, declared in a sealed statement in a prescribed form which meant that the Commissioners would not know what...