Tax and National Insurance to be merged...but it's not quite
that simple!
Since the budget announcements there has been much talk and
speculation about the Tax and NI merger. As we are all by now
aware, the government launched the OTS (Office of Tax
Simplification) to provide independent advice regarding the
simplification of the tax system. The OTS has since made
several recommendations to the government - one of which being the
merger of Tax and National Insurance.
A report by the OTS, published on the 10th March,
states "The integration of income tax and national insurance,
including reducing the differential between rates applicable to
different incomes and legal forms, could, for example, remove much
of the pressure on the employment and self-employment boundary and
should result in the IR35 legislation becoming obsolete."
Merging Tax and National Insurance would certainly have its
benefits:
- For businesses, life would be much simpler administratively and
there would be just one set of rules and regulations to adhere to
rather than two
- People will be able to see much more clearly how they are being
taxed
- It would also, in the long run, save the government billions of
pounds to have just one system running
However, on the down side, to bring these stages together would
require widespread consultation. The OTS confirmed that it
would be a "long term project" and John Whitting has said that it
is a "major cause of complexity". The merger would certainly
need to be very carefully and strategically thought out with
consideration of every possible situation. There are many
individuals that could be severely caught out by such a merger, for
example, old age pensioners, individuals who don't work or those
earning small amounts of income could potentially be charged a much
higher rate. Taking into account today's rates, basic rate
tax payers would see their income tax rise from 20% to 32% with
higher rate tax payers rising from 40% to 52%!
George Osborne has however confirmed that his main aim is to
simplify the tax system and not to raise the tax rate - he may need
a very very long time to ensure he gets it right! Osborne
ultimately wants to "make it fit for the modern age". The
Jury's out!