National Insurance: the beast in the shadows?

The Lib-Cons coalition has forced the Conservatives to backtrack on National Insurance, one of the UK's biggest revenue-generators in terms of tax, raising concerns of further disputes in the future.

Previously the Conservatives said they were stopping Labours "jobs tax" by raising the thresholds at which employers and employees started paying NICs, but this was watered down.

Under the new government employees will not receive these reliefs, which represents a significant change in tack. The new government is looking to address the gaping hole in the public deficit while raising the level of income tax personal allowances that the Liberal Democrats insisted on pushing through.

Mike Warburton, tax adviser at Grant Thornton warned sticking points would naturally arise as the new government matured.

"We've had the honeymoon, now they are having to compromise like any other couple," said Warburton.

"Inevitably there will be some parts of policy that rankles with either extremes in the coalition."

The change to the employer NI threshold and the personal allowances are taking priority over other tax cuts, including cuts to Inheritance Tax, the coalition said.

There is also a provision being made for Liberal Democrat MPs to abstain on budget resolutions to introduce transferable tax allowances for married couples "without prejudice to this coalition agreement," representing another shift of the goalposts.

The potential complications in forcing two manifestos into one is high on the agenda of the profession because it leaves them operating in a climate of uncertainty.

"With the NI changes among others it is hard to advise clients and individuals if we don't know how the land will lie," said Cathy Corns of Mercer & Hole.

The profession may also have to brace itself for an HMRC armed with an even greater powers to tackle tax evasion, one of the Liberal Democrats' stated policies.

"The parties agree that tackling tax avoidance is essential for the new government, and that all efforts will be made to do so, including detailed development of Liberal Democrat proposals," the Lib-Cons said in their draft manifesto.

George Bull head of tax at Baker Tilly said the June Budget would need to elaborate on how the manifesto pledges of each of the two parties will be adapted "to the new reality."

The Liberal Democrat proposals for corporation tax were few and far between, said Bull.

"The main restraining factor on the Conservative proposals will be the need to balance the public expenditure cuts with some tax increases.

"The Chancellor of the Exchequer has indicated that this will, broadly, follow the 80:20 rule: the £6bn of cuts may thus be “matched” with £1.5bn of tax increases. Many of the tax cuts will therefore need to be, at the very least, tax neutral."