Osborne urged to act on tax and NICs

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A group representing self-employed taxpayers has called for a full merger of income tax and national insurance contributions and suggested the creation of a new “freelancer limited company” structure as an interim measure, while Menzies tax partner Simon Massey has called on the government to “get off the fence” and consult on an alignment of income tax and NICs.

The chancellor will deliver his Autumn Statement on 3 December. IPSE, the association for Independent Professionals and the Self Employed, said an expert body should examine how a merger of income tax with NICs can be delivered. A merger would bring about a major simplification and make the abolition of IR35 possible, it argued.

In the meantime, a “freelancer limited company” structure would  deliver “clarity of employment status” for independent professionals. “It would be a specific, opt-in structure, open only to independent professionals, not large companies, which would exempt them from IR35 and treat them as a business.”

The group said in its recent manifesto that IR35 was “impossible to administer, impossible to fully understand and a prime example of overly complex tax legislation that helps no one”.

Just over half of the respondents to AccountingWEB’s recent IR35 survey favoured abolition of IR35 when asked to say what would be the single most effective solution for resolving IR35 issues, while just 16% favoured a merger of income tax and NICs.

But last week Jason Piper, tax technical manager at ACCA and a member of HMRC’s IR35 Forum, warned that it was “hard to think of a scenario worse than [the] chancellor abolishing IR35 from April only for it to be reintroduced in a new and (even more) unfamiliar form by an incoming successor as an emergency measure two months later”.

Writing on the Contractor UK website, Piper said critics of the IR35 regime would “inevitably be disappointed” that the forum’s current review will not call for abolition. “But that is simply something that the forum is not placed to do,” he said.

Obstacles ‘hardly insurmountable’

Simon Massey said the most obvious obstacle to a full merger of tax and NICs was “the impact on people not in employment, such as shareholders and pensioners, as they do not currently pay any NIC”. But this was hardly insurmountable, he suggested.

“Dividend income is already taxed at a separate rate from employment income. And most people’s pension funds are so small that some slight tweaking to either the tax threshold or the state pension would easily iron out any anomalies.”

Massey said the “real reason” for the delay appeared to be political. “No government wants to draw attention to the true marginal rate of tax that UK employees pay. For example, an employee on the UK average wage of £25,000 loses about a fifth of their income in tax and NIC.”

Integrating the operation of tax and NICs

The government consulted in 2011 on integration of the operation of income tax and NICs. In a foreword to the “call for evidence” David Gauke said the government would not extend NICs to dividends or savings, and would maintain the contributory system underpinning NICs.

Budget 2011 had suggested that integration could “remove distortions, reduce burdens on business and improve fairness”, but any change would be complex.

Responses to the call for evidence “confirmed the appetite for reform” from employers, tax and payroll professionals, Gauke said. The government established technical working groups to discuss options for reform, which met in December 2011 and March 2012.

But the Treasury noted in December 2012 that “the detailed and extensive work the government has done so far shows that this is a large and complex reform”. Employers were already adjusting to a large number of tax reforms, it added.

Autumn Statement 2012 announced “that the government will wait for further progress on planned operational changes to the tax system before formally consulting on integrating the operation of income tax and NICs”.

Ambassador

Last week IPSE welcomed the government’s appointment of David Morris MP as “the UK’s first ever self-employed ambassador, who will bang the drum for freelancers throughout the UK”.

David Cameron tweeted: “Our new ambassador for the self-employed, @MPDavidMorris, will ensure we're always supporting Britain's growing army of freelancers.”

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24th Nov 2014 17:20

Brilliant

but like so many other outstanding commonsensicle ideas it will be brushed aside.

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26th Nov 2014 12:13

Still Waiting

It would appear they have far more important things to discuss, like MP's salary increases, MP's expenses (again) House of Lords expenses (again), how to claim £300 attendance allowance for 5 minutes work (or less) - the really important things that concern MP's and Lords - rather than the more mundane work of running the country, understanding how businesses work or don't work; how businesses can be persuaded to pay for yet more red tape such as auto-enrollment of pensions, vetting foreign workers by becoming a subsiduary of the Border Agency; continuing to act as unpaid tax collectors in VAT, PAYE, CIS, NICs. Can't wait for May 2015.

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26th Nov 2014 12:29

Be careful what you wish for ..........

amalgamation of the 2 supposes higher tax rates for pensioners with the introduction of this "new" NI supplement.

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By Jas28
26th Nov 2014 12:33

What about pensioners?

If tax and NICs are combined, I have serious concerns about the effect on pensioners, and this cannot simply be resolved by "some slight tweaking of the tax threshold or the state pension". Most pensioners rely not just on the state pension, but also on private pensions, rental income, savings income etc.  If the tax rate on this income goes up from 20 to about 30 percent, in order to include NI, this will have a devastating effect on many pensioners, who are already struggling to make end meet with falling returns on investments and low annuity rates.  And I would not have any confidence in an increased personal allowance or state pension lasting very long. Look what is happening the age allowance now.  If it were reintroduced to compensate pensioners for paying increased tax (to include NI), it would only be a matter of time before some future government decided that the age allowance ought to be abolished and personal allowances should be the same for everyone. 

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26th Nov 2014 12:42

Excellent for taxing pensioners more

We could have another 50 rates of tax to make sure it's all fair. self assessed so no cost to the government. Or at least you can't see it anymore!

next job

I'm bored with that now.

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26th Nov 2014 12:47

Different rates

Set rate for those over 65 to 20% and those under 65 to 30%.

 

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26th Nov 2014 12:48

be careful what you wish for (2)

not forgetting that pension income may very well be taxed at a much higher rate than the tax relief originally obtained delivering a breach of the trust implied - because there would be few that would have saved with a 20% bonus on the way in had they known they were to be smacked with a 30% charge on the way out.

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26th Nov 2014 13:11

macaulay147 why?

It would be much better to expect wealthier pensioners to make an NIC contribution.   Particularly as the pensions for the next generation will be poorer because of the larger pensions paid to pensioners now.

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26th Nov 2014 13:25

Merging National Insurance and Income Taxes

Self employed are five million persons. Employed are 25 million persons. Autumn Statement should at least bring in three new rates of income tax:  5%, 10% and 30% in addition to the current 20% and 40% to make the entire direct tax system fairer between different levels of income. 

Personal Allowance should be abolished to discourage benefit fraud and/or tax evasion. The tax bands could be £10,000, £20,000, £30,000, £40,000 and £50,000. This would catch 95% of all earners and spread the tax burden more equitably within these tax bands.

There would be a continuous long term history of ALL earners and ALL benefit claimants.

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26th Nov 2014 14:14

or they could

Or they could just leave things as they are instead of making life more complicated.

The thing about rules is that people have to understand them and that takes time for them to learn.

Constant change is not good for anyone but psychopaths.

Anyway it will have to be good to avoid UKIP's lower tax and sensible rules manifesto

 

Vote UKIP for common sense.

 

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26th Nov 2014 15:15

Bite the Bullet

Or, they could raise the retirement age to say, 75, exempt all pensionable income from tax and have a flat rate of tax set at say 32%!

Surely in this day and age, someone is capable of drawing up computer models for some radically different scenarios to see what the fiscal outcome of various proposed tax regimes may be?

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27th Nov 2014 06:53

Merge nic and income tax?
Surely that opens the door to further abuse of the NHS. I personally prefer to clearly identify that we currently pay a very expensive health insurance based on a percentage of gross pay. Otherwise the FREE AT THE POINT OF DELIVERY brigade will have won the political arguement.

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27th Nov 2014 09:40

It would seem

a good idea that when they devolve tax to the Scots they sort our tax out as well.

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16th Dec 2014 11:55

“freelancer limited company”

Sounds great, just what HMRC wanted a voluntary classification for freelance professionals, a great way to snare those HMRC have been trying to identify for years. 

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