Consultation outcome

Key Questions on Income Tax & NICs

Updated 6 August 2018

1. Key questions: Closer Alignment of Income Tax and National Insurance

The OTS needs your help! We are gathering evidence for a review of the potential for aligning more closely Income Tax (IT) with National Insurance Contributions (NICs). We are planning an extensive series of meetings with businesses, representative bodies, professional advisers and other stakeholders. To give a framework we have developed the following areas for discussion. We would welcome comments from others we are not meeting and so are publishing our questions to help guide responses. We are also developing some short survey questions.

1.1 Background

• What industry/trade are you from and, if representing a group, how many members do you represent?

• If you are responsible for (or advise on) payrolls, what is their size or volume?

• What are your general thoughts and observations on the pros and cons of aligning IT with NIC? Should IT become more similar to NICs or NICs more similar to IT, or should some middle way be found?

1.2 The present structure of IT and NIC

• Do you think the present structure of IT and NIC is well understood by taxpayers?

• Does the present structure cause you difficulties, and in what ways, or do you find it works well?

• If the present structure causes you difficulties, how do you handle these and manage your risk?

• Can you quantify the administrative costs of the present divergent structure of IT and NIC?

• Does the present structure impact taxpayer behaviour? If so, in what ways?

1.3 Distinctions between IT and NICs – definitions

• IT & NICs both apply to (broadly) ‘earnings’ but with differing precise definitions–does this work well or cause you difficulties?

• What about permitted deductions, including expenses and pension contributions?

• Do special cases, where the categorisation regulations set out a different IT and NIC treatment, cause problems or are these helpful?

• If there were to be greater alignment, what are the main transitional issues that would concern you?

• Who would win and lose from changes in this area?

1.4 Distinctions between IT and NICs – administration

• Should NICs operate on an annual cumulative and aggregated basis, in the same way as PAYE?

• What would be the main impact (for example on part-timers) of such alignment? Who wins and loses?

• Would ‘annual NICs’ require a ‘NIC code’ in the same way as the PAYE code? How would this operate?

• Would alignment mean IT & NICs would need common thresholds and bands or could there be variations?

• Would alignment mean problems managing special cases (e.g. workers of above pension age)?

1.5 Employed vs self employed

• Would the same treatment for the employed and self-employed be a simplification?

• If yes, what problems do you see in aligning? If no, what are the barriers?

1.6 Employers’ NIC

• Are there difficulties with employers’ NICs or do they work well? Do Classes 1A & 1B help or hinder?

• If IT and NIC are aligned for individuals, what are the implications if employers’ NIC remains unchanged?

• What are the issues in seeking to align the tax base for individuals’ employment income with the tax base for employers’ NIC?

• Do employees in general understand employers’ NICs?

1.7 General administration

• What has been your experience of HMRC’s approach to the differences between IT and NIC?

• Would alignment make compliance easier or more difficult? Could the savings/costs be quantified?

• Are there issues around record-keeping, payments or HMRC enquiries which would be improved or worsened by alignment of IT with NIC? How will new technology and HMRC’s move to digitalisation impact?

1.8 The contributory principle

• What are your views on the contributory principle?

• In your experience, what do (a) your employees (b) citizens generally, believe paying NICs achieves?

• To what extent would any administrative benefits of alignment be impaired or enhanced if the contributory principle remains? Can you quantify this?

1.9 International experience

• If you have experience with payroll issues for other countries, is there a particular model you would recommend?

1.10 Finally

If wholesale alignment between IT and NIC is not feasible or practical, what would be your top 3 areas of alignment on which effort should be concentrated?

You can email the team at ots-tax-nics@ots.gsi.gov.uk. It would be most useful to receive input by 31 December 2015.