Income tax and national insurance contributions could be combined

30 September, 2015

The Office of Tax Simplification (OTS) was recently given the task of investigating the implications of merging income tax and national insurance contributions (NICs). It will assess all of the available evidence and conduct further research with stakeholders and taxpayers.

The OTS first assessed the merits of a two-tax merger in 2011, and the Financial Secretary to the Treasury – David Gauke – recently claimed that the present system is a “major source of complexity for taxpayers”.

As part of the previous OTS review, the parallel tax systems were said to cause unnecessary confusion and their distinction, which was only the result of bureaucracy, served no actual purpose.

The new review will incorporate an analysis of the potential costs and benefits of combining the two taxes, as well as indications of how the new system will impact on compliance and payroll procedures.

British workers have paid NICs along with income tax since 1911, when they were established to provide workers with a safety net in the event of unemployment or illness.

As well as supporting the funds for the universal state pension, national insurance revenue was later used to help fund the NHS.

Chancellor George Osborne is keen to see the two taxes merged, to increase pay efficiency.

However, concerns have been raised regarding how the change will affect contractors and self-employed individuals, who currently pay NICs at a different rate to PAYE employees of a company.

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