How should NIC-income tax merger work?

The government has asked experts to help it integrate national insurance contributions (NICs) and income tax. Nick Huber reports.

In a speech earlier this week, David Gauke Exchequer Secretary to the Treasury, said that the government was issuing a “call for evidence” on combining NICs and income tax before beginning a consultation in the autumn.

“Greater integration of the operation of the two systems has the potential to reduce burdens, remove distortions and improve fairness,” Gauke told an audience at the Centre for Business Taxation.

Merger challenges
Integrating two taxes won’t be straightforward. Not only are the two tax regimes administered by separate computer systems within HMRC, they also rely on different timescales, tax bands and rates.

And early moves to integrate NI and income tax will coincide with a separate overhaul of the tax system - a planned move to Real Time Information (RTI) for PAYE records that will see employers send report tax and national insurance deductions electronically  at the same time as they pay their employees, rather than at the end of the financial year. Real-time PAYE is due to start for big companies from April 2013.

Some tax experts, such as Accounting WEB.co.uk tax editor Rebecca Benneyworth, hope that the government will go further and merge NI and income tax, rather than harmonising the two taxes which appears to be the current plan.

A full merger could take up to five years - “if all went well and there were no unforseen snags”, she predicted back in March when Chancellor George Osborne raised the possibility in his Budget speech following an Office of Tax Simplification review earlier that month.

What recommendations would you offer to the Treasury? Warm up for the great income tax-NIC consulation exercise by commenting below.

Continued...

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Comments
johnjenkins's picture

What problem?

johnjenkins | | Permalink

Increase basic rate of tax to compensate for loss of NI. But what of Employers NIC. Are HMRC going to keep it and call it SET (selective employment tax) or is integration of that causing the problems. Many of us have said that doing away with Employers nic will solve a lot of problems. Surely some clever dicky expert can work out how much basic rate and corporation tax need to go up to compensate.

What is encouraging though is that Government is realising what we have been saying for years.

thoughts on Employers NI...

aburt01 | | Permalink

As this Govt have been saying for some time, indeed whilst still in opposition, Employers NI is a tax on jobs - never mind that the rate has been allowed to increase this year. 

If it is such a thing, then transposing it to a tax on company profits, in the shape of corp. tax, is only going to send company reported profits into a long-term decline for avoidance reasons.  I suspect the Govt would lose-out big time.

No, I suggest the whole lot, employer and ee NI need to become part of the paye regime. They both need to remain as an employment tax.   It may take time to swallow, but we need to add, say, 25p in the pound to PAYE.  Rates of 45%, 65% and Top rate could become 75%.  Remember current rate for highest earners is only 52% (incl. the 2% NI) employee rate, plus 13.8% employer, totalling 65.8%.   So, 45%, 60% and 70% might be fairer!?!?!

Here is the grease to lubricate the system - Employers could then be given the right to pay up to, say, 15% (13.8 rounded-up a little) of the employee's PAYE contribution as a tax-free benefit.

If employers were forced to make-up the full 15% PAYE contrib., then you could see the average tax / NI bill fall by a couple of pence in the pound.  The employer is saving huge admin costs would be my justification. And the future for ‘payrolling’ of all other benefits would look secure.

Suddenly making the true cost of NI visible to the masses will take considerable political stomach.  A coalition might just be able to swing Labour in to an all party agreement to make something like this happen.

abelljms's picture

warning!! merger ahead driven by the servants of the state

abelljms | | Permalink

 

 

warning!! merger ahead driven by the servants of the state

“A full merger could take up to five years..” what!?!?!?!
Are civil servants and lawyers running this projectile? Erm….

 

My (c)2011 MS draft spec is as follows:-

Project Objectives
§ Bin NIC
§ Make government more popular

Target date
5/4/12

Method
Stick it in the next finance bill – “NIC is abolished”

Other matters to resolve before the date of abolition

§ are there any other taxes/benefits that link to nic
§ how much tax does nic bring in each year?
§ how can we touch up the tax-payers to replace this?
§ presentation issues:- we need to avoid increasing headline numbers as the plebs/daily mail etc. will all scream/whine
§ solution is introduce a “state services tax” for all companies/self-empl to pay at rate of 12% on top of the standard rates, but listed sep. so we can pretend it is not part of main rate, but otherwise it runs on identical rules to main rate
§ And the other side we just up the quoted rates of 20/40/50 by 12% hopefully rounding them to 30/42/52 etc.
§ what about all the mickey mouse other nino rates? –bin them. Fishermen / seafarers / funny types of pension schemes / married / unmarried women etc., just scrap all those rates, brutal but it’s done.
§ What to do about thousands of civil servants no longer having any purpose in life (or job).? Send them to the factories making things.

where shall I send my bill of £1m for 20 mins work?

next government project please.

Or you can do it their way….
 

 

 

Tax/NIC Merger

Wiganer Elaine | | Permalink

 Abolish NIC and have a flat rate of tax of say 33% on ALL sources of income for those below pensionable age.

State pensions to be exempt from tax. 

Raise the minimum wage by 13.8% - employers who already pay decent wages benefit but those who can only afford to pay minimum wages will not face an increase in expenditure while those in receipt of higher income will pay more tax; employers benefitting from immediate cashflow will (theoretically) make more profits and pay more tax on the higher profits.

Raising the minimum wage will also help increase the differential between the income of those in work and those claiming benefits, hopefully making "work" a viable option rather than a life on benefits!!!

If you want to get people into work (and contribute their bit rather than live off the state) then you need to help the ones who create the jobs not penalise them for employing people!

John Stokdyk's picture

New employment taxes blog from Anne Fairpo

John Stokdyk | | Permalink

Tax barrister and AccountingWEB contributor Anne Fairpo has just opened up a new blog called Taxing Work and this topic was the subject of one of her first posts.

"There have been some suggestions that a merger would remove a lot of the uncertainty over the distinction between employment and self-employment for tax purposes," Anne wrote. "Most of this uncertainty seems to be on HMRC’s side.  The Tribunals seem to be able to tell the difference."

She continued: "Most tax planning in this area involves the use of companies, so that income tax and NICs are reduced through extracting profits as dividends, which are not subject to income tax and are subject to lower tax rates. Merging income tax and NICs will do absolutely nothing to change that and, if it increases tax for the self-employed, would seem more likely to drive the self-employed to use corporate structures and take the risk on IR35."

abelljms's picture

nino nino nino

abelljms | | Permalink

 

 

 

and of course abolishing nino will bin the salary/div strategy at a stroke of the Queen's quill......

so we will get real numbers in accounts for earnings etc...

 

NB. does ONS do an adjustment for this when they do their studies of average earnings etc..