Views sought on integration of income tax and NICs

Sunday, July 17th, 2011

  1. HM Treasury has posed fourteen questions to draw out views on the burdens faced by employers in paying income tax and NICs through the PAYE system.
  2. The independent Office of Tax Simplification (OTS) was set up in July 2010 to carry out reviews and provide expert advice to the Chancellor on options to improve and simplify the UK’s tax system.

On 10 March 2011, the OTS published its interim report on simplifying small business taxation.  One of the major structural changes recommended for the longer term was the integration of income tax and NICs.  This proposal was subsequently accepted by the Government at the time of Budget 2011.  As implementation would be complex and involve a wide range of policy and implementation issues, the Government announced its intention to start consultation on the options, stages and timing of reform.  Reassurance was given that NICs will not be extended to individuals above State Pension age or to other forms of income such as pensions, savings and dividends.

On 11 July, the Government issued a “call for evidence” document, to enable it to identify clearly the burdens on employers of having to operate two different systems.  The deadline for responses is 19 September 2011.  Proposals for reform will be published for consultation later in 2011.

The document poses the following questions:

Section 1: General Interest

  1. The Government believes that integrating the operation of income tax and NICs may have the potential to remove distortions, reduce burdens on business and improve fairness.  Do you have any comments on these objectives?
  2. Of the differences between income tax and NICs, which do you see as the most significant in terms of their impact on:
    1. economic distortions;
    2. burdens on employers;
    3. fairness?
  3. What do you think are the most important steps that could be taken to reduce the effects on:
    1. economic distortions;
    2. burdens on employers;
    3. fairness?

Section 2: Employers and Payroll Professionals

General

  1. Under the current system, how much staff time and/or other resource is required to carry out income tax and NICs processes? Please give a score on a scale from 1 to 5 where 1 is only a small amount of time/resource and 5 is a great deal of time/resource for each of the following.
    1. Familiarisation: understanding HMRC’s requirements, legislation and guidance.;
    2. Retrieval of information: obtaining the information required to run a PAYE payroll.
    3. Record keeping: maintaining the records needed for income and NICs purposes e.g. keeping copies of returns/letters where necessary
    4. Calculation: calculating and checking income tax and NICs due (including in-year and end of year processes).
    5. Provision of information to HMRC: reporting of information to HMRC e.g. P45s for new employees.
    6. Provision of information to employees: reporting and providing information to employees e.g. year end P60s.
    7. Payment of liabilities: paying income tax and NICs to HMRC.
  2. Which aspects of the current income tax and NICs process work well for your business?
  3. Do you carry out income tax and NICs obligations together? Are there any elements you carry out separately?
  4. What effect do differences between income tax and NICs have on wider payroll processes such as expenses and benefits, statutory payments and student loans deductions?
  5. Which of the differences between income tax and NICs are dealt with largely automatically by payroll software and which require significant manual working? Where manual working is required how straight forward is this?

Issues and Errors

  1. Are there particular issues that occur in the calculation of income tax and NICs?
  2. How often is it necessary to correct income tax or NICs calculations and which are the most time consuming to correct?

Software

  1. Do you have any comments about difficulties in designing or using software resulting from the differences between income tax and NICs?

International 

  1. What do you see as the main differences between income tax and NICs in relation to employees of yours who work internationally?
  2. Which of the differences outlined in question 12 are dealt with largely automatically by payroll software and which require significant manual working? Where manual working is required how straightforward is this?

Interaction with other reforms

  1. Do you have any views on how the introduction of Real Time Information (RTI) may affect the cost and benefits of income tax and NICs integration?

Further information:

Integrating the operation of income tax and National Insurance contributions: a call for evidence

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