INTEGRATING THE OPERATION OF INCOME TAX AND NATIONAL INSURANCE CONTRIBUTIONS
12 July 2011
The government has published a call for evidence as the first phase of consultation on their proposals to integrate the operation of income tax and National Insurance contributions (NICs).
The government state in the introduction that they do recognise that income tax and NICs were introduced for different reasons, and believe that they continue to have different rationales. They will maintain the contributory principle that underpins the NI system, and ensure that this will be reflected in any proposed reforms. In addition, they will not extend NICs to individuals above State Pension Age or to pensions, savings and dividends.
Formal consultation on the reform options will take place in the autumn but as a first step, the government want to make sure they have the best evidence available on the impact of the current systems on all interested parties.
While Real Time Information (RTI) will reduce the administrative burdens of operating payroll, the differences between the tax and NICs structure outlined within the call for evidence continue to place administrative burdens on the employer. This call for evidence seeks to gain a greater understanding and fuller evidence base regarding these burdens.
Questions
The CIPP Policy team will shortly be publishing a survey for members to provide their views but in the meantime below are the questions from the call for evidence so please put your thinking caps on.
The majority of the questions are focussed on the burdens employers and payroll professionals face in the day to day operations of income tax and NICs but there are also questions with a more general interest.
Section 1: General Interest
1. The Government believes that integrating the operation of income tax and NICs may have the potential to remove distortions, reduce burdens on business and improve fairness. Do you have any comments on these objectives?
2. Of the differences between income tax and NICs listed in Table 1.A (or any others that you
consider important) which do you see as the most significant in terms of their impact on:
- a economic distortions;
- b burdens on employers;
- c fairness?
3. What do you think are the most important steps that could be taken to reduce the effects on:
- a economic distortions;
- b burdens on employers;
- c fairness?
Section 2: Employers and Payroll Professionals
General
4. Under the current system, how much staff time and/or other resource is required to carry out income tax and NICs processes? Please give a score on a scale from 1 to 5 where 1 is only a small amount of time/resource and 5 is a great deal of time/resource for each of the following:
a) Familiarisation: understanding HMRC’s requirements, legislation and guidance.
b) Retrieval of information: obtaining the information required to run a PAYE payroll.
c) Record keeping: maintaining the records needed for income and NICs purposes e.g.
d) keeping copies of returns/letters where necessary.
e) Calculation: calculating and checking income tax and NICs due (including in-year
f) and end of year processes).
g) Provision of information to HMRC: reporting of information to HMRC e.g. P45s for
h) new employees.
i) Provision of information to employees: reporting and providing information to
j) employees e.g. year end P60s.
k) Payment of liabilities: paying income tax and NICs to HMRC.
5. Which aspects of the current income tax and NICs process work well for your business?
6. Do you carry out income tax and NICs obligations together? Are there any elements you
carry out separately?
7. What effect do differences between income tax and NICs have on wider payroll processes
such as expenses and benefits, statutory payments and student loans deductions?
8. Which of the differences between income tax and NICs are dealt with largely automatically by payroll software and which require significant manual working? Where manual working is required how straight forward is this?
Issues and Errors
9. Are there particular issues that occur in the calculation of income tax and NICs?
10. How often is it necessary to correct income tax or NICs calculations and which are the most time consuming to correct?
Software
11. Do you have any comments about difficulties in designing or using software resulting from the differences identified in Table 1.A (or any others that you consider important)?
International
12. What do you see as the main differences between income tax and NICs in relation to employees you have who work internationally?
13. Which of the differences outlined in question 12 are dealt with largely automatically by payroll software and which require significant manual working? Where manual working is required how straightforward is this?
Interaction with other reforms
14. Do you have any views on how the introduction of Real Time Information (RTI) may affect the cost and benefits of income tax and NICs integration?