Business to have its say on NIC-income tax merger

The government’s first step in considering a merger of the National Insurance and income tax systems – a move which would render IR35 obsolete, has been taken, with an invite to interested parties to have their say.

In March last year, the Office of Tax Simplification said integrating the two fundamentally different tax systems would “take away the need for IR35” or, at least, would “lead to a reduction in the tax motivation for incorporation.”

Accepting the OTS recommendation in his Budget, George Osborne said that, as part of his attempt to make the UK tax system fit for the 21^st century, the government would explore aligning the operation of income tax and NICs.

The proposal drew instant condemnation from contractor recruitment captains; was dismissed by tax experts as impractical to the point of unworkable and was characterised by pensions commentators as too much of a political risk.

But serving to keep the chancellor’s promise, the Treasury has announced it will spend the next two months consulting on integrating tax and NICs, with an initial focus on building a case that operating two separate systems is burdensome for employers.

Exchequer Secretary David Gauke said: “Greater integration of income tax and NICs will be a radical reform but we believe that it has potential to bring real improvements.

“This is a first step in our consideration of this matter and we would like to hear from businesses and other stakeholders before we move on to further consultation later in the year.”

All “interested parties” were invited to respond the consultation, which runs until September 19^th, with scope for “further comments” in addition to answers being sought from questions posed within the document (PDF).

The 18-page call for evidence does not mention IR35 directly, preferring to speak of “anomalies” arising from income tax and NICs not being unified, resulting in different periods and bases of charge.

The paper adds: “The resulting anomalies impose costs and complexity on employers, and cost the taxpayer through the administration burden on HM Revenue & Customs.

“We believe that greater integration of the two systems has the potential to remove economic distortions, reduce burdens on business, and improve fairness across individual earners.”

The Treasury says OTS found that the distortions and costs arising from NIC and income tax being apart remain, yet it also showed there is “appetite among small businesses and tax practitioners for these systems to be simplified.”