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The name 'Income Tax' implies that it is levied on what a person has received in return for his labour or by investing his capital. But it is not.
For somebody in full-time employment, it effectively defaults to the same thing as tax on income. This is because the employee receives payment of his wages at the same time as the tax is deducted from what he 'earns' and forwarded to the Inland Revenue. This is a strictly controlled procedure with precise timing. For the self-employed, however, the process is not so fairly expedited.
When I invoiced a client for work I had done for him, I had, by so doing, informed him that he owed me the money for doing the job. The invoice, in effect, indicated that I had earned the money. It did not imply that I had received it. My stack of invoices for the year were thus a record of my earnings for that year, not my income. Nevertheless, my so-called income tax was computed from the invoices, not the credits on my bank statements. The tax I actually had to pay was thus the tax calculated on the full amount of my earnings: not my actual received income.
Practically all my invoices were paid very late. A large proportion of them were never paid at all. This meant that the actual tax I had to pay to the Inland Revenue could leave me easily with far too little to live on. This actually happened. My income for 1977, as shown on my income chart, was my invoiced earnings. What I actually received was far less. This taught me a very painful lesson.
The DSS takes one's income as being that computed the way the Inland Revenue does it - namely the value of issued invoices. You will get no state welfare if earnings are above the benefit threshold: irrespective of your actual income.
I could reclaim tax I had paid on invoices which ended up as bad debts. But for this to happen, I had to be able to prove they were genuine bad debts. This required either that the client had gone bust or that I had lost a legal action against them in attempting to recover the money. Clients rarely went bust, and legal actions of debt recovery were very expensive and uncertain. I could not risk them. In any case, I would not have received the rebate until about two years after the event, meaning I would have to find that actual amount of money to (effectively) lend to the Inland Revenue for the duration.
When one is threatened with destitution by bad law, it is time to become creative. I did.
It is utterly reprehensible for any state to tax any individual on any money other than that which he has already received. Income Tax in name should be Income Tax in deed.
The present structure of income tax dates back to an era when government rightly thought that the rich should be taxed at a higher rate than the poor. But instead of applying a natural exponent to the tax rate to create a smooth increase with income, they cack-handedly divide the tax into bands, each with a different rate.
The exponential method is natural and perfectly fair. But governments are convinced that ordinary people are too stupid to understand it. The banded system is only fair at the band boundaries. Furthermore, because the confusing labyrinth of 'benefits' have different rates and band breaks, millions of individuals end up in tax traps - false 'third order' tax minima in which it becomes actually disadvantageous to 'earn' more - or even have an earned income at all.
A rationalised exponent based tax system could never develop any such problematical anomalies.
Computer software takes great effort over a long time to develop and perfect before it can be released for sale. The development cycle of a single package can span far more than a year. Sometimes it can take two or three years. If, at the end of its development, it is sold to a distributor, all the revenue for that package arrives as income in a single transaction. Tax on that income is payable as if it were the income corresponding to the single year in which the invoice was struck. I am therefore taxed at a very high rate for the year in which it was sold, and I do not even achieve my tax-free allowances in the other years in which I was developing it. I am super-taxed in one year and not taxed at all in others. This results in my being taxed over the two or three years on average at a much higher rate than if I had 'earned' the money uniformly over those years.
In reality, however, the income was 'earned' over the years I was actually developing the software. That's when I did the work. To be taxed fairly, along with people whose income is steady, what I received for my software should have been equally divided between the years I was working on it. Then my tax should have been worked out separately for each of those years. It appears that farmers and writers can have their incomes thus spread over several years. And for this very reason. But, my accountant told me, it is only allowed for certain named occupations. Software developers are (or at least were at the time) not one of those.
This is unfairness caused solely by badly formed legislation. The essence of it surely should be that anybody with an erratic income cycle should be able to have their incomes amortised over several years. Legislators should not try to second-guess which occupations (present and future) are specifically subject to erratic income cycles.
Even the natural exponential formula for taxing income ceases to treat everybody fairly in the presence of income whose cycles span more than a single year. One who has seven years of plenty followed by seven years of famine would, even under exponential taxation, be taxed far more severely than another who had the same total income arriving evenly over the 14 years. The only universally fair formula for taxation is a linear percentage levied on the whole of one's income (from the ground up) each year.
One may immediately cite, as the prime and most ancient example of a straightforward percentage tax on income, the tithe of the land as implemented in Ancient Israel. But one would be wrong. The tithe was fundamentally different from modern income tax. In the modern capitalist state, the only vaguely similar form of tax on economic yield is the tax levied on corporate profit. Even that is not strictly the same. Corporate profit is the yield generated by an artificial market: not by a natural biospheric process.
Income tax is a tax on the yield of one's own human labour - one's effort. The tithe was not. The ancient tithe was a tax on the economic yield of nature: not on the economic yield of human labour. This yield depended on the fecundity of plants and animals and on other factors in the natural operation of the Earth's biosphere. It was nothing to do with the quantity or quality of the human effort of those who reaped and gathered it.
It was a tenth of net increase in consumable wealth generated by the bit of the Earth's biosphere contained within the estate of each economically active household. It is the only completely fair and equitable form of tax.