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Tax and NICs alignment – not now, thanks

One of the crumbs of comfort from the Autumn Statement last week was the knowledge that UK payroll professionals would not have to go through a massive change – namely, the closer alignment of tax and National Insurance Contributions (NICs)

Ian   Holloway
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Ian   Holloway
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Nobody really likes change but sometimes it is necessary.
Nobody really likes change but sometimes it is necessary.

One of the crumbs of comfort from the Autumn Statement last week was the knowledge that UK payroll professionals would not have to go through a massive change – namely, the closer alignment of tax and National Insurance Contributions (NICs). I know that I breathed a sigh of relief. However, that was very quickly followed by recognising reality – we have a PAYE system that is, to be honest, not fit for purpose in the 21st century.

 

The concept of closer alignment of the tax and National Insurance systems was first mooted in Summer Budget 2015. A March 2016 report by the Office of Tax Simplification (OTS) suggested a seven-stage programme for bringing the two regimes closer together:

  1. Moving to an annual, cumulative and aggregate (ACA) basis for employee NICs.
  2. Basing employers NICs on whole payroll costs and renaming the charge – the Payroll Levy.
  3. Aligning the self-employed NICs more closely with employees’ NICs.
  4. Improving transparency for NICs and the contributory principle.
  5. Aligning the definition of both earnings and expenses for income tax and NICs.
  6. Bringing taxable benefits in kind into Class 1 NICs.
  7. Having a joined-up approach for income tax and NICs laws and practice.

Budget 2016 picked up on the first two points for further investigation and research and terms of reference were published in May 2016. The OTS was asked to produce a report ahead of Autumn Statement 2016 indicating the financial “gainers and losers” as well as the administrative benefits and challenges.

 

The OTS reported in November 2016 and made clear that any alignment would be complex, costly and come with winners and losers. Yet, the report indicated almost universal support from the numerous people and organisations that were involved in their research. Given the fact that the current system is not fit for purpose, many were expecting an announcement at Autumn Statement 2016 that would progress their research and lead to reforms.

 

Indeed, the statement itself mentioned that it “welcomes” the report.

 

However, a letter from chancellor Philip Hammond to Angela Knight and John Whiting of the OTS said that any reform would be a “major upheaval” and, to summarise:

  • Regarding ACA, Mr Hammond said that he was pleased the issue had been raised, but, “I do not consider now to be the right time.”
  • Regarding a Payroll Levy, this is being kept “under review” by the appropriate officials.

To me, this seems as though 15 months of considerable work and research has been dismissed in a two-page letter. We do have a little alignment in the fact that the Primary and Secondary thresholds will be the same going forward, but I can’t say that excited me very much. Now was the time to be bold and undertake some radical reforms. Nobody really likes change but sometimes it is necessary.

 

Seems like an opportunity missed.

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