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Government sets out plans to integrate NI and income tax

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The Government has stopped short of a full merger of national insurance and income tax as ministers examine proposals to integrate the two systems.

The Treasury issued a call for evidence in July this year following a report from the Office of Tax Simplification highlighting the case for integrating national insurance contributions and income tax.

In its formal response to the call for evidence the Treasury says there is a “clear appetite for reform”, with most responses focused on making the system of national insurance more like income tax.

The Treasury says any reforms are likely to focus on “alignment, simplification or operational integration” rather than a complete merger of the two systems.

It says: “The Government will maintain the contributory principle that underpins national insurance. Those in employment will continue to pay or be treated as paying national insurance in order to receive financial support while out of work, whether through illness, unemployment or in retirement. As such, NICs will need to retain an identity distinguishable from income tax.

“National Insurance will remain a charge on the earnings of working-age individuals. The Government does not intend to extend NICs to other forms of income such as pensions, savings and dividends. The Government sees NICs as remaining a system based on payments from employment earnings, in return for replacement earnings when out of work. Nor does the Government plan to extend NICs to individuals above state pension age.”

Treasury Exchequer Secretary David Gauke says: “We are exploring ways in which we could integrate the operation of income tax and NICs, with benefits for employers and employees.

“The Government will be working in partnership with external stakeholders to identify options and will report on progress at Budget 2012.

“Our vision is to transform the customer experience of the personal tax system.”

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Readers' comments (7)

  • How long do you think we'll have to wait after any 'integration' for the first suggestion that NICs should be extended for 'simplification purposes?

    It's the thin end of the wedge.

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  • In other words....

    "the Government employs vast numbers of people to manage both the NI and Tax Systems and a significant number of people to correct the mistakes made by the other team.

    We the Government, are unable to see how combining the teams will massively reduce costs and errors and so we propose to keep spending vast sums of your money to achieve no real gain."

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  • And just to prove how easy it could be.

    Personal Allowance Level remans where it is - and then -

    Individuals under the Age of 65
    Basic Rate of Tax 32%
    Higher Rate of Tax 42%
    Highest Rate of Tax 52%

    Individuals over the Age of 65
    Basic Rate of Tax 20%
    Higher Rate of Tax 40%
    Highest Rate of Tax 50%


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  • “Our vision is to transform the customer experience of the personal tax system.” Are these people on drugs or simply on another planet ? And this word "stakeholder" - it makes me so angry !!!

    The govenment and every one of its quangos is completely out of touch with the citizens who pay their wages.

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  • In reality the thought of this makes me cringe.
    Historically both departments have failed with technology, to the extent that they have spent vast amounts of tax payers money and have currently the worlds largest corrupt data base!!
    There has been no marked improvement in either since they adopted computerised systems-can someone please stop this stupid and ill conceived idea and get them to sort out the present mess they are both in.
    Incidentally as I am well over retirement age i can offer excellent evidence of the inability of both systems to offer efficient service with accuracy-or are these two factors incompatible??

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  • Wait for it folks!

    1/. Ooops! This new simplified structure isn't conducive to allowing salary sacrifice! What a surprise! Sorry chaps! (Kerching!)

    2/. Oh, by the way, we did tell you that we were stopping contracting out - did we mention we were repatriating existing contracted out monies that haven't been crystallised back to the State's coffers - don't worry though! You’ll get a suitable S2P top up-accordingly of course chaps! (..................'til we move the goal posts, that is! Tee hee! Suckerrrrs!). Kerching!

    3/. Don't forget we'll also be taxing your "Pension commencement Lump Sum" (why do you think we changed the name, you moron!). Kerching!

    Yours faithfully

    Mr A. Cynic

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  • Personal NI, 13% rubbish! The charge to NIC is calculated on the gross earning but then recovered from net income. The effect is a real rate of loss of 16.25% for the basic rate tax payer, add that to tax and we have an effective deduction of 36% on band earnings to the UEL.
    At the higher rate, the rate of NI loss is 2% / 40% = 3.33 and of course the upper rate being 2%/ 50% = 4%.
    Thereafter 14% for the business. So a proprietary businessman within the basic rate band has an effective marginal rate of 50%.
    Don’t get me going!

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