The Charitable Purposes Exemption from Income Tax:Pitt to Pemsel 1798-1891
Degree GrantorUniversity of Canterbury
Degree NameDoctor of Philosophy
Abstract In the Assessed Taxes Act 1798, and the Duties upon Income Act 1799, William Pitt the Younger provided exemptions from those taxes for charitable institutions. However, the legislation failed to provide a definition of charitable purposes with respect to either Assessed Taxes or Duties upon Income. The problems for charitable institutions began when Addington introduced deduction at source in 1803, thus catching charitable institutions in the tax net by requiring them to claim refunds of Income Tax that had been deducted from their non-voluntary income. To deal with the issues arising from such claims, Pitt created the Special Commissioners in 1805. The Duties upon Income Act 1799 and its successors were only intended as temporary war-time taxes, and Income Tax was eventually repealed in 1816 once peace with France had been achieved. However, Peel reintroduced Income Tax in 1842, based on the earlier Income Tax Acts. Once again, Income Tax was intended only as a short-term fiscal measure, but that was not to be and, during the course of the Nineteenth Century, the Income Tax became a permanent fixture of the legislative calendar. However, the issue of what was understood by the term “charitable purposes” with respect to Income Tax became an issue which, it was suggested in 1863, Parliament should resolve. That was not to be, and it was not until 1891 that Lord Macnaghten, in Commissioners for the Special Purposes of the Income Tax v Pemsel  AC 531 laid down the four principal divisions of charity that continue to dominate charity case law in the Twenty-First Century. Until then, the exemption of charitable institutions from Income Tax had been a contentious issue. Anthony Highmore, a London lawyer who was also very active in a number of London’s charities in the late Eighteenth and early Nineteenth Centuries until his death in 1829, proposed in 1786, that charities should be exempt from all forms of taxation. In 1863 Gladstone unsuccessfully challenged the exemption of charitable institutions from Income Tax, arguing that income other than voluntary donations should be taxed, and that governments should decide which charitable institutions were worthy of direct government funding. However, charity case law continued to influence the decisions of the Special Commissioners until ultimately in 1891 Pemsel resolved the issue in a case which continues to resonate in the Twenty-first Century. The question that this Thesis seeks to answer is, what was the rationale for the charitable purposes exemption from Income Tax that Pitt had provided in his Income Tax Acts? I propose that the rationale was not founded in fiscal policy, or charity case law, but in social policy as influenced by the Evangelicals of late Eighteenth Century London, predominantly William Wilberforce and Hannah More, who were close friends of William Pitt the Younger.