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The Institute sees the potential for significant simplification of the tax system and encourages the Government to seize the opportunity to make this plan a reality.
The Office of Tax Simplification (OTS) set out the plans in their report, ‘The closer alignment of income tax and national insurance’. (See: Aligning national insurance and income tax - Shout99, Mar 2016).
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“The two taxes perform much the same purpose. Having two different systems for calculating and administering them creates unnecessary inefficiencies and administrative burdens. Some will make the case for full merger, but even short of this many of these burdens can be reduced by integrating and aligning the two taxes. The OTS’s report today sets out a much needed roadmap for how this could be done.
“Simplification and alignment would reduce the cost on businesses, employers, individuals and HMRC. This would also free up resources for HMRC to be redeployed to tackle other areas and also meet government spending reduction targets. It would also enable swathes of the NI legislation to be repealed from the statute book - the latest edition of Tolley’s NI Contributions runs to over 1,000 pages!”
Proposals
On the specific proposals made by the OTS, Colin Ben-Nathan said: “The OTS have recommended putting employees’ national insurance on an annual basis and aggregated across employments as happens with income tax. If the Government is serious about alignment then this has to happen. It would obviously create winners and losers and where the low paid would be among the losers the Government should consider enacting compensatory measures at the same time as making this change. Raising the threshold at which people start paying NI would be one possibility.
“The OTS are sensible to recommend that NI for employed and self-employed people should be aligned as closely as possible. The more that employment and self-employment can be treated similarly, the better. And aligning definitions of earnings and reliefs available for income tax and NICs – including bringing taxable benefits-in-kind fully into NICs – is also a sensible suggestion that would reduce the burden on employers. Overall the additional employee NI that this would raise could be used to finance compensation for the lower paid.
“On employers’ NI the OTS include the radical suggestion of discarding the secondary threshold and instead basing the charge on total annual payroll costs with an “employer’s allowance” of £675,000 and a flat rate of 13.5 per cent. This would exclude the vast majority of employers from the tax and leave only the 10,000 largest employers paying it with 1.54 million smaller employers having no liability. This would be a huge and welcome simplification for the vast majority of employers.”
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Susie Hughes © Shout99 2016
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