The collection of Class 2 National Insurance Contributions (NICs) for the self-employed will be moved into self assessment, the Chancellor revealed this afternoon in his 2014 Budget.
The change will take effect from April 2016 and is expected to remove red tape for up to five million people, George Osborne said.
The simplification of Class 2 NICs comes as a welcome move, however rather than being a move towards an income tax and NICs merger, it relates to the collection rather than the calculation and operation of tax.
Rather than representing a first step towards amalgamation, BDO remuneration partner Philip Fisher pointed out that the Chancellor spoke of it as an OTS policy recommendation to “move the collection of Class 2 NICs into self-assessment, abolishing for 5m people this wholly unnecessary bureaucracy”.
“If this was the first step towards merging tax for the employed and self employed, that would be by far the most exciting part of the Budget,” said Fisher. “Where’s this earnings tax we heard so much about last week?”
Rebecca Beneyworth commented that political sensitivities probably constrained the Chancellor from moving towards full integration of NICs and income tax, but added: “This is an important administrative move that cuts out a layer of admin that didn’t need to be there.
“A swathe of people who didn’t pay Class 2 NICs - many of them because they simply forgot - won’t slip through the net because it’ll all be collected at the same time through self assessment.”
Alex John from TaxCalc, who sat on our panel of experts during our live Budget blog, also pointed out that the new measure will require changes to software to allow for this amendment.
“This is probably the biggest change TaxCalc will see due to this particular Budget but not one we have to consider for a while yet,” she added.
John Whiting and the OTS team also got a name check in the Chancellor’s speech:
“Thanks to the Office of Tax Simplification we have already cut burdens on administration – and I am grateful to Michael Jack, John Whiting and their team for their hard work,” Osborne said.