National insurance alignment baffles experts

Tax experts were left scratching their heads this week after an enigmatic
reference in last week’s Budget to a possible convergence of national insurance
and tax rules.

Budget documents suggested there was a case, ‘for low paid workers’, to align
the two systems, without making clear what

alignment was being envisaged.

‘While recognising that aligning two very different systems with very
different purposes presents difficult challenges, the government will conduct a
review in time for consultation after the pre-Budget report,’ Budget documents

Some advisers pointed to the

fact that NICs are paid on a weekly basis, and income tax on a yearly basis,
as one distinction that could

be dropped.

The difference in treatment means that temporary workers can incur a NIC
liability for a week’s work, but not an equivalent income tax liability because
they would not exceed annual thresholds for the payment of the tax.

Any move is likely to be complex. National Insurance contributions, whilst
sharing other features of income tax, also entitle those paying them to state
pension benefits amongst other things.

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