Marking the occasion, the Inland Revenue has opened an exhibition at Somerset House to illustrate the history of income tax.

The original legislation levied 10% on incomes above £200

Great Britain was the first country in the world to introduce the tax in 1798 when the country was losing the fight against the French in the Napoleonic wars.

BBC correspondent Patrick Bartlett explains the history of income tax

The government's coffers were bare so William Pitt the Younger introduced the tax on a temporary basis after a tax on dogs and hair powder had proved fruitless.

William Pitt wanted to raise £10m, but due to a certain resistance by the public he only raised £6m. Now, over £86bn is collected through income tax.

The tax was lifted at the end of the wars in 1815 but was reintroduced in 1842 because of a growing budget deficit.

In 1874, politicians Benjamin Disraeli and William Gladstone stood against each other at the general election but both said they would repeal the tax. Disraeli won and kept it.

In World War One income tax reached the unprecedented level of 30% with a surcharge on high incomes.

In 1976 the standard rate was 35% and the highest rate on earned income was 83%, but there was a 15% surcharge on investment income which brought the top rate of tax to 98%.

In the past few years, income tax has undergone massive changes.

Unveiling the new exhibition, Financial secretary Dawn Primarolo said: "The role of the Inland Revenue is to change in a quite fundamental way in the next few years.

"Traditionally their role has been to assess and collect taxes. Soon they will administer the Working Family Tax Credit, the Disabled Person's Tax Credit....and responsible for auditing the National Minimum Wage."