TaxPersonal TaxBudget 98 – NI red tape cut

Budget 98 - NI red tape cut

National Insurance reform removes anomalies but costs employers more. Jon Bunn reports.

A radical restructuring of the National Insurance system is a mixed. blessing, tax experts claimed.

The Chancellor’s decision to equalise the point where NI and income tax starts to be paid – at z81 of earnings a week – will cut red tape and remove one million low-paid workers from the NI net.

But Gordon Brown’s decision to raise the employer’s NI rate to 12.2% will cost business more, as will the Taylor report’s recommendation to charge NI on all employee benefits.

Inez Anderson, KPMG’s employee issues tax partner, said the planned merger of the Inland Revenue and Contributions Agency would also slash bureaucracy for companies. ‘From April next year, employers will only have to deal with one organisation,’ she said.

Jim Yuill, Ernst & Young’s director of social security services, added: ‘For years the agency has followed Revenue announcements without fully understanding them. This merger will put an end to defective legislation.’

Yuill added major employers would be ‘forced to take a hit’ from the increase in the employer NI rate, although he claimed employers paid little attention to costs when taking on a new employee.

He said: ‘Despite that, aligning the thresholds for income tax and NI could be a major benefit. If the government can find a way to make it work, it will be a real simplification, as will abolishing Class 2 self-employed NI contributions.’

The Chancellor also cracked down on NIC avoidance. In future, earnings paid in assets which are ‘readily convertible into cash’ will be liable.

Moira Conoley, a Coopers & Lybrand partner, said: ‘The increase in employer rate and anti-avoidance measures have a significant cost implication for these schemes.’

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