Research and analysis
Closer alignment of income tax and national insurance contributions
The Office of Tax Simplification has published its recommendations on closer alignment of income tax and national insurance contributions following a simplification review.
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The Office of Tax Simplification’s (OTS) report on closer alignment of income tax and national insurance contributions (NICs) sets out a seven-stage programme for bringing the two taxes closer together.
The executive summary sets out seven key steps towards closer alignment:
- moving to an annual, cumulative and aggregate basis for NICs
- basing employers NICs on whole payroll costs and renaming the charge
- aligning the self-employed NICs more closely with the employees’ NICs – and benefits
- improving transparency for NICs and the contributory principle
- aligning the definition of both earnings and expenses for income tax and NICs
- bringing taxable benefits in kind into Class 1 NICs
- having a joined up approach for income tax and NICs laws and practice
The report contains six initial summary chapters each of which is supported by a later chapter with further more detailed analysis. The report also has annexes summarising the over 600 responses to the OTS’s surveys on income tax/NICs as well as some sample views of those contributing to the OTS’s extensive researches and evidence gathering.
The OTS report highlights that the potential changes if alignment is pursued will impact on millions of people – it’s estimated that 7.1 million will pay less NICs but 6.3 million will pay more NICs (some of whom will gain contributory benefits). Thus the OTS recommends strongly that a lot more work needs to be done to flesh out the impacts so that informed choices on how to proceed can in due course be made. There needs to be a drive to improve understanding of what NICs and the contributory principle mean to ordinary taxpayers. The OTS looks forward to receiving input on these ideas and can be reached on: firstname.lastname@example.org .