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Out from the long grass? An IT and NI merger

Those with a long memory will recall that at the start of the last parliamentary term George Osborne announced his intention to merge income tax (IT) and national insurance (NI).  Headline grabbing as the initiative was, the reality of the complexities, challenges and costs of such a move resulted in this idea being kicked into the political long grass.

Roll forward five years, and the idea is back on the radar again, as can be seen from this report.

So is this is any more likely to happen during the current parliamentary term?

This remains a hugely challenging project, but at least one of the principal hurdles to any such merger is already in the process of being removed with the consultation on changes to the tax relief system for pensions already under way. Changing this part of the taxation code could make it much easier to make a reality of the more ambitious project of an IT and NI merger.

It’s also worth highlighting that such a union would likely remove the savings for employer and employee inherent in salary sacrifice offerings. As we already know from the summer Budget, this is an area that is being closely monitored by HM Treasury at present as well.

So the bottom line is that this time the merger could be a genuine possibility. But before employers reach for the valium to calm their increasingly strained nerves, it is worth highlighting that such a change is only likely to occur once the pensions tax relief situation is fully resolved (a process that must surely take a minimum of two to three years). Logically, therefore, change in this space might well fall into the next parliamentary term (2020–25).

We shall all watch this one with interest.

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