The Office of Tax Simplification's (OTS) latest report has called for the Chancellor to bring together National Insurance contributions and income tax in order to ensure a fairer and simpler system for both taxpayers and businesses.
While the OTS has previously urged the merger of the two systems, this report called for a closer link between the two rather than an outright merger. However, the body made it clear that a full merger was its 'favoured option,' due to the transparency and simplicity it fells it would provide.
The OTS also said that a full merger would allow for "many of the distortions in behaviour encountered around employment status and profit extraction," in a statement that seemed to refer to the controversial IR35. It stated that it understood that, as a result of the major shift in taxation that a merger would ensure, the move was "simply not on the agenda" for now.
Instead, the OTS has called for a shift to a yearly, cumulative template for employees’ NICs, as well as charging employers’ NIC as a levy on overall payroll costs, with an included allowance for each employer.
“A simpler, and fairer, system would treat everyone’s earnings in the same way, for both income tax and national insurance. This means that national insurance would be calculated in the same way as income tax, making it easier to understand…we found near-universal support for reform to the NICs system," said OTS’s tax director John Whiting.