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Govt delays income tax/NI merger plans

The Government has pushed back a consultation on integrating national insurance and income tax until after the summer due to the complexity of potential reforms.

In the Budget in March, Chancellor George Osborne hinted the Government could look to merge the two regimes. The Treasury was due to produce a consultation outlining possible reform options in April.

In a statement issued today, the Treasury says: “As many stakeholders have recognised, this is a complex issue with potentially significant implications for employers’ payroll operations.

“In parallel, the Government is looking in more detail at the interplays between options for integration and reforms to the welfare system. This includes the proposal announced at Budget to reform the state pension into a single tier pension, details of which will be set out in a forthcoming white paper.

“Finally, the Government also respects that some stakeholders have asked that we avoid consulting on this major issue over the summer months, particularly given the London Olympics.

“For these reasons, a consultation on IT/NICs integration will not be launched until after the summer. However, the Government remains committed to exploring the potential for integration and will provide an update on this work in the autumn.”

Hargreaves Lansdown pension investment manager Laith Khalaf says: “Clearly complexity is the biggest problem facing the Treasury in getting these reforms to work in practice.”

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. Could it be that the Osborne has realised – what many previous Chancellors discovered – that to acknowledge that basic rate income tax is actually 32% is not exactly a vote winner. There is no complexity in abolishing NI and readjusting income tax rates. It just isn’t likely to be popular with taxpayers – particularly those who pay at higher rates who equitably ought to pay more rather than lumping all the costs of social care onto basic rate taxpayers.

  2. And of course there’s the qualfying years issue for state pensions – or will these simply become payable to all regardless of contributory history?

    Simplifying the system does make sense, if only one can deal with all the “unintended consequences” that will no doubt crawl out of the woodwork.

  3. Lorna, I guess that you’re not drawing any pensions yet.

    For pensioners, the basic rate of tax is very much not 32%. Rather, the basic tax rate paid by pensioners is 20%.

    National Insurance, according to the Government, is paid mainly to cover the cost of the state pension. All IFAs will know that when a pension is drawn, the pensioner stops making contributions.

    Combining Income Tax and National Insurance into one rate would mean that both state pensioners and those drawing other pensions will continue making pension contributions through the tax on the pensions paid to them but will not receive higher pensions in return for this extra tax paid. In the case of the state pension, the pensioners receiving the pensions will have tax deducted from them to pay for the very pensions they have just received.

    For information on the benefits that National Insurance qualifies you for, see:
    http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/BeginnersGuideToTax/NationalInsurance/IntroductiontoNationalInsurance/DG_190052

  4. Soren Lorenson 1st June 2012 at 8:41 am

    Lorna is correct but her maths is wrong. The basic rate of income tax is actually 45.8% made up from 20% income tax, 12% employee NI and 13.8% employer NI.

    Once over the personal allowance it costs an employer a staggering £1.84 to pay an employee £1.

    This is clearly the reason why NI and IT have not been merged.

    And we wonder why there is no growth in the economy.

  5. Centaur: Comment testing again

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