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The government has signalled the beginning of its look at the possible tie-up of the operations of income tax and National Insurance contributions (NICs) – as announced in the spring Budget.
As a preliminary stage of considerations, the Treasury has issued a 14-question call-for-evidence document with the aim of establishing a clear understanding of the burdens to employers and payroll professionals of dealing with two different systems. The deadline for contributions is 19 September 2011.
Ministers say they recognise income tax and NICs were introduced for different reasons and continue to have different rationales – but greater integration has the potential to remove economic distortions, reduce burdens on business, and improve fairness for individual earners.
Such a measure would be a ‘radical reform’, said Exchequer secretary David Gauke, but it has ‘potential to bring real improvements’.
The Chartered Institute of Taxation has long argued that the inefficiencies and administrative burdens caused by the separate levies need to be addressed. The professional body’s president, Anthony Thomas, congratulated the government for ‘finally grasping a nettle that successive administrations have shied away from’.
He added, ‘There are real administrative savings, for employers and for HMRC, in harmonising the way the two taxes are run.
‘There are risks to this process, and it is right that the government proceed carefully. [Ministers] are right to have ruled out extending NICs to pensions or to savings income at the present time, as this aspect could otherwise have overshadowed the consultation process.’
News of the call for evidence follows an interim report from The Office of Tax Simplification, which in March highlighted the enthusiasm among small firms and tax practitioners for income tax and NICs to be simplified. A similar recommendation was made last November by the Mirrlees review of the UK tax system by the Institute for Fiscal Studies.
