Railways and the Mid-Victorian Income Tax
Colley, Robert, The Journal of Transport History
In October 1857 the South Yorkshire Railway Company was the subject of a damning report by the Government Surveyor of Taxes at Sheffield.1 As a joint stock company it was under a legal obligation to perform certain duties in the collection of taxes. It was required to deduct income tax from the rents which it paid, and from the dividends and debenture interest which it paid to its shareholders and mortgagees, and to account for this to the Board of Inland Revenue.2 Although it had, for many years, regularly deducted this tax, much of it had been retained and used for the company's own purposes. The Surveyor considered that the revenue had been 'grossly defrauded, not in ignorance, but with deliberate intention'.3 he estimated that the company had been underassessed for 1857 by L30,000.4 Two years later, his successor calculated that, in addition to this, assessments had been deficient by almost L300,000 in the previous decade.5
The Acts which governed joint stock companies and railway companies present a complex picture that includes assorted interventionist and regulatory elements, both in the free incorporation Act itself and in the complementary railway legislation.6 These, together with the income tax Acts, were steps in the direction of further regulation and intervention by the State that was growing in the mid-nineteenth century. Tax regulations relating to the deduction of tax at source had been in force since the beginning of the century but they assumed greater significance with the emergence and rapid expansion of the railways.7 As Alborn has observed in the context of railways and the mechanisation of joint stock politics, despite their largely regional conception, the logic of rail transport and an integrated national network imbued the railways with a deep sense of national scope and led them to seek capital from a broad investing public.8 Indeed, many railways presented themselves as national institutions in order to attract funds that were unavailable in their immediate districts.9 The diffusion of ownership through shareholdings, the need to raise capital from the public through debentures, and the consequent stewardship of large amounts of money received from investors, invited government intervention and regulation - not only to give protection to investors and creditors, but also to safeguard its own interests by ensuring that substantial amounts of income tax were properly accounted for both by the company and by its members and mortgagees.
The railways' vision of national identity, however, quickly outpaced the administrative framework of taxation, which was still rooted essentially in the parish. How was the government to cope with these large multi-parish corporate forms, which grew rapidly in the nineteenth century, using local apparatuses which had changed little since the seventeenth? Though regulatory elements may be evident in the taxing statutes, their realisation was often impeded by the imperatives of local politics. It was thought that the regular dissemination of information to shareholders about the state of a company's finances, through its balance sheet, would act as a check on fraud and malpractice; and that the deduction of tax at source, which would effectively satisfy the tax liabilities of thousands of investors, would act as a check on tax evasion. Whilst theoretically straightforward, rules such as these posed immediate problems, since they presupposed a high degree of compliance and raised several questions. How and by whom were national laws to be enforced at a local level? Who was to police their application? How were infringements to be detected and penalised? At its simplest, the legal framework envisaged a system in which local, lay commissioners would administer the income tax, with subordinate supervision by government officials, termed Surveyors of Taxes. Although a degree of surveillance and information gathering was essential in order to monitor compliance, the law made inadequate provision for it and the task was undertaken, in the main, by the Surveyor through an often serendipitous collection of information from local sources, the use of informers and his own initiatives. …