Income tax and national insurance alignment

13 May 2016

The Office for Tax Simplification (OTS) has published the terms of reference for its second phase review of income tax and national insurance alignment.

The government has asked the OTS to undertake two further reviews, building on the work and recommendations in its earlier reports:

1. a review on the impact of moving employee NICs to an annual, cumulative and aggregated basis (‘ACA’) similar to PAYE income tax. NICs is currently calculated on a pay period basis; and
2. a review on the reform of employer NICs to a payroll based charge.

Whilst these structural changes could be considered in isolation, if the basis of assessment for Class 1 primary NICs moves to ACA, it would be natural to review the basis for Class 1 secondary NICs at the same time.

The OTS will publish a further report ahead of Autumn Statement 2016. The government will then respond in full on all the OTS’s proposals to bring IT and NICs closer together.

The merger of IT and NICs, the extension of NICs to non-earned income or to pension income, and international cross-border issues, are outside the scope of these specific reviews. However, the OTS has received (and will no doubt continue to receive) a range of views on these issues, and may reflect these where they contribute to future debate on simplification.

The report will set out who might pay less and who might pay more (the ‘gainers and losers’), and the benefits and challenges of an ACA system of employee’s NICs and a payroll tax system of employer NICs including implementation and transitional issues.

The report is contingent on the availability of new data within the timescale, either based on deeper analysis of existing sources or on commissioning new data sets.

The report will enhance understanding and engagement with these issues with all impacted parties.

CIPP comment The Policy Team will continue to be involved in all consultation and will be asking for your input so please watch out for more news on this complex area The OTS are speaking at all of this year’s CIPP National Forums so if you haven’t yet signed up, visit the events area on our website to book your place – these events are free to members and there are limited spaces.