The government has issued a call for evidence as part of its consideration of the integration of the operation of the income tax and National Insurance contributions systems, announced at Budget 2011.
This is a preliminary stage of consultation, and aims to build a strong evidence base on the burdens to employers of having to operate two different systems. Responses to this call for evidence will inform the government’s proposals for reform, on which it will consult in the autumn.
The two systems are currently operated entirely separately and the government believes that greater integration of the two has the potential to remove economic distortions, reduce burdens on business, and improve fairness for individual earners.
The call for evidence document poses 14 questions, the majority of which focus on the burdens employers and payroll professionals face in paying income tax and NICs through the Pay As You Earn system.
For example, how much staff time and other resource is required to manage the systems, which aspects of the process currently work well and how often problems are encountered when calculating payments.
David Gauke, Exchequer Secretary to the Treasury, said:
The government is committed to a programme of tax reform that aims to make the UK tax system the most competitive in the G20 for business, and simpler to understand for individual taxpayers. Greater integration of income tax and NICs will be a radical reform, but we believe that it has potential to bring real improvements.
This is a first step in our consideration of this matter and we would like to hear from businesses and other stakeholders before we move on to further consultation later in the year.
The government recognises that income tax and NICs were introduced for different reasons and believes that they continue to have different rationales. As stated at Budget 2011, the government will maintain the contributory principle that underpins the National Insurance system, and ensure this will be reflected in any proposed reforms.
NICs will not be extended to individuals above State Pension Age or to pensions, savings and dividends.
The deadline for responses to the call for evidence is 19 September 2011.
Notes for Editors
The call for evidence can be found in our consultation area under Integrating the operation of income tax and National Insurance contributions: a call for evidence
The Office of Tax Simplification’s interim Small Business Tax review of March 2011 highlighted the appetite among small businesses and tax practitioners for the two systems to be simplified. A similar recommendation was made by the Mirrlees review of the UK tax system by the Institute for Fiscal Studies. A number of representatives of UK businesses have also called for action to reduce the costs of running the two systems.
Details of HM Treasury’s approach to tax policy making can be found on theTax policy making: a new approach page.
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