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Income tax and NI merger kicked into the long grass

Advisers say the complexity of merging income tax and National Insurance contributions could see the reforms “kicked into the long grass” by the Treasury.

In the March Budget, the Treasury announced it would produce a consultation in April, outlining possible reform options for integrating National Insurance and income tax. Last week, the Government pushed back the consultation until “after the summer”.

In a statement last week, the Treasury said: “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 in the Budget to reform the state pension into a single-tier pension, details of which will be set out in a forthcoming white paper.

“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.”

The announcement follows a U-turn by Chancellor George Osborne last week over plans to limit the tax relief on charitable giving at £50,000 or 25 per cent of an individual’s income, whichever is greater.

Hargreaves Lansdown pension investment manager Laith Khalaf says: “Complexity is the biggest problem facing the Treasury in merging National Insurance and income tax. This was always going to be difficult and it looks as though ministers have decided to kick it into the political long grass for now.”

Keyte Ltd director Robin Keyte says: “Complexity is the biggest problem for the Treasury but that is exactly why it needs to reform the system because at the moment it is a nightmare for small businesses.”

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  1. By keeping these two methods of raising income tax separate it gives planners much more flexibility in targetting the effects and amounts raised. It is an excellent system and it would be foolish to scrap it.

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