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21 Mar 2011
CHANCELLOR GEORGE OSBORNE is planning to announce proposals to merge income tax and national insurance contributions in Wednesday's budget in a move designed to simplify tax administration and cut collection costs.
He is expected to outline how he will merge the two and phase out differences between the tax and what is still technically a contribution towards welfare and pension provision. NICs are viewed as largely anachronistic because the reliance on a contributions record to qualify for and quantify for benefit entitlement has reduced in recent years.
The intention was leaked to the media over the weekend as Osborne sought in advance to define his financial package as "a budget for growth", slashing the costs facing small and medium-sized businesses in particular.
The chancellor has already been advised in a report from the Office of Tax Simplification that a merger would be beneficial, though difficult.
The downside is the danger the resultant tax will be regarded as a tax rise, pushing marginal rates for some to more than 50%.
And with different thresholds and rules to be aligned, there is a danger that attention will concentrate on those who will lose out, including those with unearned income who at present pay no NICs and higher earners who try to "disguise" some of their earnings.
But the approach will make it easier to deal with the outstanding issue of IR35 and the taxation of the self-employed.
Osborne is also expected to raise the basic rate income tax threshold faster than the rate of inflation again in a further move to placate the Tories' bruised Liberal Democrat partners, who set out the intention to move towards excluding all those earning £10,000 or less from tax altogether in the coalition agreement.
But it may be paid for by reducing the threshold for the higher (40%) income tax rate.
(Picture © HM Treasury/Crown copyright)
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Visitor comments Add your comment
What about pensioners?
This will mean real hardship to pensioners who don't have the option of supplementing their incomes when things get tight!
At present once you are past retirement pension age you no longer have to pay NI contributions. Are pensioners now expected to pay the "new" combined tax rate on their limited incomes?
The Chancellor has already hit pensioners hard when he didn't increase the age allowance for people over 65 in line with the personal tax allowance for those under 65, maybe he could make the state pension non taxable to compensate!
Posted by: Anne Watson, 21 Mar 2011 | 13:31
pensioner
I hope that Mr Osborne remembers people on a pension who do not pay NI. Under this scheme an increased basic rate to incorporate NI would penalise every pensioner who is paying tax.
Posted by: John Livingston, 21 Mar 2011 | 15:04
They didn't get it after all
In spite of many recent 'Visitor Postings' about the flaws in this proposal, especially for pensioners, and re-assurances to the contrary, those operating the Office of Tax Simpletons didn't 'get it 'after all.
Posted by: trevor openshaw, 22 Mar 2011 | 13:32
Proposed merger of NI and income tax
I am a tax paying pensioner, and
and as such I am exempt from paying NI contributions. How could any Chancellor, having decided to merge NI and income tax, burden every tax paying pensioner with what would be a punative level of tax. In fact, while the new level of tax would not have any real impact for those people still in employmnet, the real losers would indeed be tax paying pensioners. This is cleary totally unacceptable, and I sincerely hope that in the event of such a radical change to our already unfair tax system, that Mr Osborne will implement the necessary action to safeguard the the current net income of Britain's pensioners.
Posted by: Dave Hendy, 22 Mar 2011 | 14:31
Its got to be a good thing
The current system has served its purpose, but the days of separate offices for National Insurance and Income Tax have long since passed.
The ones bleating on "What about pensioners?" are so short sighted - an increase of the personal allowance for OAPs will ensure that they are not paying any more tax than at present.
The cost of administering income tax has got to be much cheaper than administering that and National Insurance, plus you have less scope for those people who least need to, to be "avoiding" taxes on swaithes of income that most of us only dream about having!
Now all we have to sort out is the lost corporation taxes on UK companies moving themselves abroad, or the 'Philip Green's wife' cases where huge amounts of dividends are paid to people resident in tax havens!
Posted by: Peter Swift, 22 Mar 2011 | 16:51
Employment income surcharge
Merging NIC and income tax is sensible as at present NIC applies to employment income only and not to dividends, £million plus profit shares of Big Four Accountants and Magic Circle Lawyers
Posted by: Mark Edmond, 22 Mar 2011 | 17:37
Wait for the detail
Perhaps a bit quick to jump conclusions about how (if at all) it would effect working pensioners?
Posted by: Lime, 24 Mar 2011 | 11:38