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OTS proposes income tax and national insurance merger

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The Office of Tax Simplification has urged the Government to integrate income tax and national insurance contributions in its interim report on small business tax.

The recommendation comes as part of a review of the taxes imposed on small businesses. The OTS also suggests introducing a “radical new approach” to taxation for the smallest unincorporated businesses

In its report, published today, it says: “The integration of income tax and national insurance, including reducing the differential between rates applicable to different incomes and legal forms, could, for example, remove much of the pressure on the employment and self employment boundary and should result in the IR35 legislation becoming obsolete.

“Obviously, the position of pensioners, who currently do not pay NICs will need to be considered thoroughly.”

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Readers' comments (5)

  • Neat thinking---this is a crafty government trying to remove the link between benefits and contributions. Everything just gets lumped in to tax revenue and in the end they will be able to dump all of the civil servants currently cocking up the allocation of our National Insurance contributions.

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  • Get rid of every single tax other than VAT (purchase tax).

    VAT might have to go up to 50% or more but by getting rid of income tax, CGT, IHT, corporation tax, NI, etc, etc, etc you would be able to get rid of the Inland Revenue, 50,000 accountants, and would also save individuals and companies the vast amount of time it takes to fill in returns and keep records.

    It would be completely fair since those spending the money would be those paying the most tax. And, it would be impossible to evade paying tax.

    This may seem radical, but the best ideas usually are !

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  • Thank god, I've waiting for a Govt to suggest this for years. There never has been a real relationship between NI and benefits because people just go onto means tested benefits instead, - there is never a point where someone is told they can't get anything because they haven't paid in. The tax and NI system creates a fiction where people think the tax-rate is lower than it is. We would all be better of if people knew the truth, i.e the basic rate is really over 30% and we would get rid of a whole load of admin and Govt overhead into the bargin.

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  • I see a potential problem here. In theory I would always support tax simplification, however it rarely happens in practice and often produces further complications. I also believe this will be a mechanism for increasing tax levies in certain instances, specifically dividend income - currently free of NI, would become subjected to a higher rate of tax than at present. This could negatively affect owners of small companies.

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  • The problem in the past has been that because people pay into the NI fund which solely funds the state pension (and a few other benefits) each and every person believes they are entitled to the state pension. Remove that connection and it is the first step towards means testing the whole state pension so that only the needy get it. It really is bonkers for taxpayers (or NI payers) to pay for a pension of £6,000 per year to millionaires (and they do claim it).

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