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Tax merger may not see full combination

The Institute for Fiscal Studies predicts the proposed merger of National Insurance and income tax will not result in the tax regimes being fully combined.

Chancellor George Osborne said last week in the Budget that the Government would consult on merging the operation of the two taxes but added that National Insur- ance would not be extended to pensioners and the contributory principle would remain.

Giving evidence on the Bud- get to the Treasury select committee this week, IFS director Paul Johnson says these restrictions mean the Government is limited in how far it can go down “the very long escalator” towards fully merging the two.

He said: “What is proposed is a good first step but the next several steps seem to be ruled out for the time being.”

Barnett Waddingham consultant Malcolm McLean says: “Keeping the contributory principle means keeping separate records for NI, so I cannot see the practical benefits of this for employers or the Government in terms of savings on time and effort.”

Johnson told MPs they would have to wait for the consultation before getting many of the important details about the potential merger.

He said: “It could involve the period over which they are assessed, the way in which HM Revenue & Customs ass- esses them and some of the definitions of income on which they are assessed. All of that seems like a move in the right direction.”

After the Budget, industry experts said fully merging the two taxes could end salary sacrifice. McLean says: “We still are not really sure what they are trying to do with this so called merger but if National Insurance is retained, I expect the scope for salary sacrifice will remain.”


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