Help low-income workers by aligning income tax and NIC thresholds

Today the Government has published a policy paper on aligning the point at which employer and employee National Insurance Contributions (NICs) start to be paid.1 It has led the Low Incomes Tax Reform Group (LITRG) to highlight that more could be done to help low-income employees by pursuing a different alignment – that of the primary (employee) threshold for NICs with the point at which income tax starts to be paid, the personal allowance.

Anthony Thomas, Chairman of LITRG, said:

“From 6 April 2017, employees will start to pay NICs on earnings over £157 a week. Annualised, this amounts to £8,164 – a difference of £3,336 when compared to the personal allowance for income tax which will be £11,500.

“The system as a whole would be substantially more coherent if the NIC primary threshold and personal allowance were aligned, or at least if moves were made towards doing so.

“Such a move would help many more people, mainly women, who work part-time in schools, supermarkets, catering and so forth to support the family income while raising the children and who receive no benefit from increases in the personal allowance; but they may be subject to Class 1 primary NIC. As many such women might otherwise be entitled to National Insurance Credits2 if they did not work, payment of NICs is effectively an additional tax charge.

“For all those reasons, aligning the NIC and income tax thresholds would do much more to help workers on the lowest earnings than further increases to the personal allowance alone.”

Notes for editors

1.                   See https://www.gov.uk/government/publications/aligning-the-primary-and-secondary-national-insurance-contributons-thresholds/aligning-the-primary-and-secondary-national-insurance-contributons-thresholds. This note confirms the alignment of the primary threshold (the starting point for employees to pay Class 1 National Insurance Contributions) with the Secondary Threshold (the starting point for employers to pay Class 1 National Insurance Contributions). Both thresholds will be £157 a week from 6 April 2017 (currently £155 a week for employees and £156 a week for employers).

2.                   See https://www.gov.uk/national-insurance-credits/eligibility – for example, claimants of Child Benefit for a child under 12 are eligible for National Insurance Credits.

3.                   LITRG has often pointed out in the past that changes to the personal allowance alone do not necessarily help those on the lowest incomes – particularly those who do not earn enough to start paying tax, and those who are in receipt of means-tested benefits calculated on the basis of net-of-tax income. LITRG’s latest comments on this subject can be found in its press release following the Autumn Statement: http://www.litrg.org.uk/latest-news/news/161123-press-release-cautious-welcomes-package-measures-designed-help-low-earners

4.                   Low Incomes Tax Reform Group

The LITRG is an initiative of the Chartered Institute of Taxation (CIOT) to give a voice to the unrepresented. Since 1998 LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.

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. The CIOT’s 18,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.

Contact: Hamant Verma, Head of External Relations (gcrozier@tax.org.uk; 020 7340 0569 or 07740 477 374)