The Office of Tax Simplification (OTS) has published “Closer alignment of income tax and national insurance: a further review” which sets out analysis and possible options for NIC reform.
The OTS recommend implimentation of the seven-stage plan as set out in their March 2016 report on alignment of income tax and NICs over the next five years.
This review also considers in more detail the impact of two of those stages as requested by HMRC:
- Moving employees’ NICs to an annual, cumulative and aggregated basis, similar to that for PAYE income tax.
- Changing employers’ NICs to a payroll levy.
Annual, cumulative and aggregate NICs
The review considers what the impact might be across different demographics: earning levels, ages, gender, industry sectors and location.
- About 5.5 million people would pay more NIC, £242 per year on average. These will tend to be those paid more than £20,000 and those with two or more jobs.
- About 7.6 million people would pay less NIC, £169 per year on average. These will tend to be lower earners and those working for only part of the year who will still benefit from a full year’s “NIC allowance”.
- Some of those paying more will have paid less than others with a similar income in previous years, for example because they had more than one job.
- The link between NIC and contributory benefits, such as the state pension, would have to be considered, as would the link with Universal Credit entitlement.
- A new “NICs code” would be needed, similar to the PAYE code.
The OTS have also published a paper, NICs Code: Design Options, setting out what the NIC Code itself could look like.
Employer payroll levy
The review sets out a number of options for introducing a payroll levy, without identifying a clear winner.
- Flat-rate payroll levy.
- Replacing employer threshold with a cumulative annual employee allowance.
- Replacing employer threshold with a full-time equivalent employee allowance.
- Linking it to a percentage of employee NIC.
Links
November 2016 OTS: Closer alignment of income tax and national insurance: a further review
For further developments see the Finance Act and Bill rolling planner.