CIOT backs renewed call by the OTS for National Insurance and income tax alignment

The Chartered Institute of Taxation (CIOT) has welcomed the further work done by the OTS in support of its call for National Insurance contributions (NICs) and income tax to be more closely aligned.

In a report published today,1 the OTS reaffirms its call for the ‘outdated system’ of NICs to be reformed to make it ‘fit for the future’. The OTS has been considering a move to an annual, cumulative and aggregated (ACA) basis for employees’ NICs and charging employers’ NICs as a levy on total payroll costs with an employment allowance for each employer.

Colin Ben-Nathan, Chairman of CIOT’s Employment Taxes Sub-committee, said:

“We agree with the OTS that a move to align the way that employee NIC is charged on earnings with the way income tax is charged on employment income must be a good thing. Having two different systems charging tax on essentially the same income leads to duplication, complication and additional cost all round. The weekly and monthly limits that apply for NIC also produce distortions which do not arise in relation to income tax. That said, changing to an ACA system for employee NIC will produce losers as well as winners and so careful thought will need to be given to the transition, particularly to the effect on the lower paid. One approach may be for the Government to raise the primary threshold for employee NIC closer to the level of the income tax personal allowance so that the lower paid are properly protected. Such a move will have to be judged against a potential cost to the Exchequer.

“We think that the proposal to move employers’ NIC to a payroll levy based on total payroll costs is sensible, and the OTS has produced some interesting analysis as to how this might be done, looking at the trade-off between the rate of the levy and the amount of employment allowance that may be available to each employer.

“We hope the Government agrees that this OTS report provides a solid foundation for further consideration of a move to an ACA approach for employee NICs and a payroll levy for employers’ NIC. And that it decides to take forward the other proposals on alignment of income tax and NIC included in the OTS’ March report.”

Notes for editors

1.       1. The Government asked the OTS to investigate whether national insurance could be simplified, to create both a simpler and a fairer system that supported modern working patterns. Today’s report builds on the March 2016 report and sets out the case for NIC reform, with an indicative five-year timetable. Its report published today can be found here.  The OTS’ report in March can be read here.

2.        2. The Chartered Institute of Taxation (CIOT)

The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.
The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.
The CIOT’s 17,600 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.

Contact: Hamant Verma, External Relations Officer, 0207 340 2702 HVerma@ciot.org.uk  (Out of hours contact: George Crozier, 07740 477 374)