The Office of Tax Simplification (OTS) has been doing some sterling work in easing the administration burden on employers. In their latest report the OTS has put forward proposals for a closer alignment between tax and NI.
“In contributing to this review, employers who administer the system expressed many concerns, particularly about the administrative complexity of applying different sets of rules; individuals were unclear on the relationship between NICs and benefit entitlement; and there was little recognition of the differing and sometimes distorted outcomes for the employee and the selfemployed. In earlier reviews, the OTS has flagged these issues and in this review recommends that the time is now right to consider in detail the case for change.”
In getting the project rolling, five questions were posed initially
Can we move to a common definition for Income Tax and NICs for earnings?What about moving NICs to an annual, aggregate and cumulative basis?Should the self-employed pay (and benefit) in the same way as the employed?Is the contributory principle still worth it?What of employers’ NICs?As the OTS work has progressed, other questions were added such as
What lessons can we draw from other countries?Why are benefits in kind treated differently for NICs?Can we improve the system for employees coming to and leaving the UK?Why can’t NICs be changed in the Finance Bill?So, what has the OTS recommended – the main proposal is that NI is calculated on an annual basis rather than on an earnings period basis. In other words, the calculation of tax and NI would operate on similar principles.
John Whiting, tax director at the OTS, said the current regime was “struggling to cope” with the growing trend towards people having multiple sources of income, including self-employment alongside part-time work.
Comment
We recommend that employers download the reportJohn Whiting will be speaking about the ongoing work of the OTS at our annual conference in June
