The Chartered Institute of Payroll Professionals ……………………………………………………………Policy News Journal
PAYE (Pay As You Earn)
Aligning national insurance and income tax
Aligning national insurance and income tax 10 March 2016
The OTS has published the findings of a detailed review into bringing the two payroll taxes closer together which includes a seven stage closer alignment plan.
The Office of Tax Simplification (OTS) has published the findings of a detailed review into bringing the two payroll taxes closer together to create a simpler and more modern system.
The review recommends a seven-stage programme to closer alignment as outlined below, to achieve a system more aligned to current and future working patterns, but cautions that the impacts need to be carefully understood and considered. 1. Move to an annual, cumulative and aggregated assessment period for employee NICs as happens with PAYE and income tax. This could mean many people paying more NICs and many paying less NICs. 2. Base employers’ NICs on whole payroll costs. This would be easier to understand and reduce distortions from fragmented hours. 3. More closely align the NICs position for the UK’s 4.7m, and rising, self-employed with that of employees. This would remove complexity and could potentially deliver more benefits. 4. Critically review the contributory principle, but first increase understanding of what it really does – and doesn’t – do; for example, finding people who believe that NICs pays for the NHS and that they need to have a full contributions record to qualify for NHS treatment is worrying. 5. Align the definition of earnings for IT and NICs and the reliefs available for IT and NICs to make it more equal for employees and cut the burden of managing the differences for employers. 6. In the same way, bring taxable benefits in kind fully into NICs to remove the distortions in the NICs treatment of non-cash pay. 7. Harmonise the rules governing the management of IT and NICs, and their administration, including setting up a method so that any changes can operate automatically for both taxes, to make it easier for employers and HMRC to administer the system and reduce unnecessary differences.
The OTS review concludes there would need to be a well-signposted path to this major reform with clear explanations to ensure all groups were well aware of the implications.
The CIPP Policy Team will be consulting with the payroll profession on this so watch out for a survey in the coming weeks.
Read the full review - Closer alignment of income tax and national insurance contributions
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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 Chartered Institute of Payroll Professionals
Policy News Journal
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