Tax and NIC integration – your input

OTS survey of alignment of the two taxes

In March 2011 the Office of Tax Simplification (OTS) set out its recommendations for tax and NIC integration in its interim report on Small Business Review. Following on from that work the government has commissioned the OTS to examine the potential for aligning income tax with NIC.

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.

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.

A report, to be published ahead of Budget 2016, 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.

The OTS are now gathering evidence of where the complexities lie in the current difference between income tax and NIC. For example, there are differences in the definition of income, whether you are employed or self-employed, and in the treatment of expenses and benefits. In addition, income tax is calculated on your annual income whereas NIC is calculated every time you are paid. Part of that process is inviting individuals to take part in a 5 minute survey.

The survey, which can be found by visiting here, contains 7 tick box questions, so as to enable individuals to tell the OTS of their experience and what they think could be done to simplify the current system. The final question, number 8, asks. ‘Do you have any other comments on the simplification of income tax or NICs?’ and invites you to set out your thoughts. This is your opportunity to provide your input into what could be a step towards ridding the contracting world of IR35.

There is also a longer version of the survey for agents, payroll providers or employers which takes about 15 minutes to complete.