The Chartered Institute of Payroll Professionals ……………………………………………………………Policy News Journal
In March 2016 the OTS published its first report on these issues, concluding that aligning the way the two taxes are calculated would create a simpler, more transparent and fairer system for taxpayers and employers. The OTS recommended a 7-step plan to do this:
calculating employee NICs on a similar basis to PAYE moving employer NICs to a payroll levy aligning the scope and definitions for income tax and NICs the self-employed to pay and receive the same contributory benefits as employees benefits in kind to be fully within NICs increase transparency and understanding amongst taxpayers harmonise administration and legislative procedures.
That report also demonstrated that changes to employees’ NICs could result in many millions being adversely impacted, as well as there being many millions of gainers – in fact more gainers than losers.
Similarly, replacing the complexity of employers’ NICs with a simple payroll charge could have significant implications for some industry sectors.
So the OTS has been drilling down further into the numbers to get a fuller picture of the potential impacts of these options. The new report takes forward these two key aspects of the OTS’s proposals; they want to ensure a more informed public debate on the implications: who would be affected and by how much? Calculating employee NICs on a similar basis to PAYE The OTS’s key proposal is to move employees’ NICs to an annual, cumulative and aggregate (ACA) basis, so that it is calculated in a similar way to PAYE income tax. This redesign could result in 5.5m employees paying more NICs and 7.6m employees paying less. The problem with employees’ NICs Currently, an individual’s sources of employment income are treated separately for NICs, so that someone with two part-time jobs can pay less NICs than someone earning the same from one full time job. PAYE income tax combines sources of income, so this difference doesn’t arise. Report summary As well as the full report , the OTS has also published an at a glance document and a report summary which provide an excellent summary of their findings and also illustrates the distortions caused by the way NICs are calculated now. NICs code: design options The OTS has also published a NICs code: design options paper where they propose a NICs code which replicates the function of the PAYE/IT code but adopts a different format. The paper provides further detailed explanation of the alternative ways a dedicated NICs code could be designed, as part of an annual and aggregated NICs system.
The paper also considers whether underpayments of NICs should be collected through the PAYE/IT code or the new NICs code, concluding that it would be preferable to use the PAYE/IT code.
CIPP comment
Associate Director of Policy & Research, Helen Hargreaves said,
“The policy team welcome the proposed five year lead in time for this project. As with any simplification plan, many details must be worked through; not only with payroll professionals and other stakeholders but also and importantly with the payroll software community, giving them ample time to design and introduce the necessary changes. This is going to be a complex process with many areas of legislative change and also guidance updates to fully support employers and employees. We support the OTS’s recommendations and will continue to work with government, stakeholders and CIPP members to ensure the changes are introduced efficiently and with as little admin burden as possible.
The government’s response is due to be published at Autumn Statement (23 November); our news summary of the Chancellor’s announcements will provide all the details.”
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The Chartered Institute of Payroll Professionals
Policy News Journal
cipp.org.uk
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