Another crack at tax/NIC alignment

OTS to take another look at harmonising the taxes

It was just over four years ago that the Office of Tax Simplification set out its recommendations for tax and NIC integration in its interim report on Small Business Review. Building on that work, the OTS has agreed with the government to undertake a study into the closer alignment of the two taxes with a view to understanding the different stages of improving the harmonisation of the taxes.

In the Small Business Review, differences in the rules and procedures between the income tax and NIC systems were found to be the second highest source of complexity for small businesses. The report identified that maintaining two separate systems led to a number of anomalies, helping to distort business behaviour. As a result, the OTS recommended bringing the two systems closer together and set out a number of stages that could be taken to implement this whilst stopping short of a full merger. Their point was that each of the stages would yield simplification dividends.

Terms of reference

The main aim of the project is to explore more fully the steps that would need to be taken to achieve closer alignment of income tax and NIC, and the costs, benefits and impacts of each of those steps.

The report will consider the evidence already available, including previous OTS work, and undertake further research with stakeholders and taxpayers. In particular, the OTS will consider

  1. The case for change, including the distortions, burdens and costs associated with the current system.

  2. The changes that could be introduced to bring the two systems closer together in relation to the taxation of earned income (for employers and employees) and the self-employed.

  3. The costs, benefits and impacts of each step.

  4. All forms of NIC charge, including employers’ NIC.

  5. How any changes would fit with wider government policy/objectives, including:

  • The system of determining entitlement to contributory benefits;

  • Exchequer costs; and

  • Burdens for business

This review will not consider the extension of NIC to non-employment income such as property lettings, dividends and pensions.

In carrying out its work and framing its recommendations, the OTS will have regard to:

  • The effect on the taxpayer and business understanding of the system

  • The likely effect on compliance burdens

  • The impact on any distortions to current taxpayer behaviour caused by the current system

  • Avoidance risks

  • The principles and design of HMRC’s Making Tax Easier reforms, including digital tax accounts, integrated reporting and payment

  • HMRC operational impacts

  • Likely revenue implications, both in terms of the impact on both the Exchequer and the impact on different types of taxpayers

  • Administrative costs for government (including the administration of the contributory benefit system) 

  • Fairness and consistency of treatment of taxpayers

The OTS will publish a final report ahead of Budget 2016. It may publish an interim report and/or calls for evidence during its work.

The Association of Chartered Certified Accountants (ACCA) has already signalled that it would not support unification if it is used as a tax raising exercise.

1 Comment

  • lisa says:

    This is just going to highlight how much tax we actually pay and what little we get in return. As for dividends and pensions – just more tax on tax – double tax, for small businesses Coorp tax has already been paid, and now no tax credits so more tax on small businesses and then toss in NIC! when we know that there will be no NHS and no State pension when most working ppl reach retirement age. So will we get a refund!? NHS privatisation – should that not decrease NIC?
    All it is is paying for too big Govmt, MPs expenses, Royals and illegal wars! Even education isn’t free!

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