Merging National Insurance and income tax 

It would be a welcome measure, but how realistic is the proposal to merge payroll and National Insurance?

In the Budget, George Osborne announced that the government will ‘consult on’ merging National Insurance (NI) and income tax.

The chancellor said, ‘For decades, we have operated income tax and NI as two fundamentally different taxes and forced businesses large and small to operate two completely different systems of administration, with two different periods and bases of charge.

‘The resulting anomalies are legion. And it imposes totally unnecessary costs and complexity on employers, and costs the taxpayer in the extra burden it places on HM Revenue & Customs.’

Chris Cole, managing director of price comparison service Make It Cheaper, says, ‘From an administrative perspective, it would be great to have them merged; at the moment it’s like doing unpaid administration for the government having the two things separate.

‘The issue is how do we incentivise companies to employ more people and tackle youth unemployment? I think they should be looking more at how to provide tax breaks and incentives – perhaps reducing NI contributions – in order to employ people in particular groups that you’d want to get into work.’

However, Chris Jones, director of tax at Lexis Nexis, says it is unlikely that PAYE and NI will ever be as one. ‘Don’t believe them when they say they’ll incorporate payroll and National Insurance – they won’t,’ he says. ‘In addition, Osborne is not going to extend National Insurance to pensioners or investment income and he’s not going to get rid of the contributory principle. He’s just tinkering round the edges.’

Tracy Ewen, managing director of independent commercial finance company IGF, agrees: ‘Everyone’s been wanting this to happen for years – it’s nirvana that you could have one single calculation that says if you earn £20,000 you pay X amount and £30,000 Y amount, but in reality its probably never going to happen.

‘SMEs have a hard enough job at the moment trying to keep on the right side of HMRC doing their payroll and working out the different calculations. They would welcome it with open arms, but I don’t see that happening immediately, if ever.’

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