NI contributory principle remains, Gauke reaffirms

THE MERGER of the operational aspects of income tax and National Insurance will solve the problems associated with the contributory principal of NI, Exchequer secretary to the Treasury David Gauke has said.

Gauke was launching the government’s consultation document on merging the two levies as announced in this year’s Budget. In March, HM Treasury called for evidence on the initiative and found that there was an “appetite for reform”.

The main issues for employers was the time it took to familiarise themselves with the differences between income tax and NICs, especially the different treatment of earnings and expenses. Other issues with NICs included the pay period, the treatment of internationally mobile employees and the different definitions of employment status.

The most common suggestion to alleviate the burdens on employees was to move NICs to an annual and cumulative basis, to mirror the income tax system, followed by aligning the definition and treatment of earnings.

“Many respondents argued that a complete merger would be necessary,” the consultation document said, “although most recognised that this was not the government’s objective.”

John Whiting, tax director of the Office of Tax Simplification, which originally called for a review, welcomed the consultation document, but said he was “personally disappointed” that the government failed to review the contributory principle.

Gauke said he was confident that many of the problems associated with the contributory principle will be removed by addressing the operational aspects of NI. The process for merging the operational aspects on their own would take more than one Parliament, he added.