A new report has called for National Insurance contributions (NIC) and Income Tax to be brought closer together.
The Office of Tax Simplification (OTS) has called for changes to the current system – which it refers to as ‘outdated’ – to be modified and modernised to create a simpler and fairer arrangement for business and taxpayers.
“As patterns of employment continually change, many more people are combining employment and self-employment: these different ways of working are with us, and so the current national insurance system is not just complicated but is simply out of date,” said Angela Knight, chair of the OTS.
The OTS’ independent review has, according to the organisation, highlighted ‘the need for reform and shining a light on difficult areas’.
The report found that National Insurance contributions are generally designed for working patterns that have become increasingly archaic over the years. The OTS looked into whether the process could be simplified to create a fairer system that reflected the working pattern of the modern age.
The OTS has expressed its belief following the report that ‘a simpler, and fairer, system would treat everyone’s earnings in the same way, for both income tax and national insurance. This means that national insurance would be calculated in the same way as income tax, making it easier to understand’.
The organisation added that its view is widely supported, and that the move ‘could change the amount some people pay, but would not raise taxes overall’.
“We found near-universal support for reform to the NICs system with many seeing alignment as a simple and obvious step,” said John Whiting, OTS tax director. “The potential gains in easier administration, proper transparency and greater understanding are clear. But the impact of change will be considerable: millions of people would pay more in NICs but millions would also pay less. Some paying more would gain contributory benefits but all these impacts need to be carefully worked through and thought about. More work is needed and so is a proper, informed debate about the considerable implications.”