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HM Treasury ‘Calls for Evidence’ Response – Next Steps
Friday, November 18th, 2011
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Budget 2011 announced that Government would consult on the topic of a closer integration between tax and National Insurance, the subject that always seems to be on every Government’s ‘back burner’ in recent years. Between July and September this year, HMRC ran a call for evidence, which received over 70 responses from a range of organisations. The Office of Tax Simplification (OTS) recommended that Government responded by the end of 2011, detailing the responses, setting out objectives, a timetable for change plus the objectives of that change. HM Treasury issued its Next Steps document last week doing just that.
It is worth spending time looking at this document, as the results will undoubtedly affect our professional lives in years to come. The interesting parts of the consultation are contained in Chapters 3, 4 and 5, a bulleted summary of which are detailed below:
Chapter 3 – Summary of Findings
- There was a general welcome of Government proposals to integrate tax and National Insurance (NICs) further. Aligning NICs along the lines of tax was the focus of most responses.
- As an administration burden, the call for evidence found it was the differences between the tax and NICs system that were most time consuming, together with manual calculations and explaining the differences to employees
- However, it was the different definitions and treatment of earnings and expenses for tax and NICs that were the most common issue raised
Chapter 4 – Reform
- As expected, analysis of the evidence confirmed that Government were to go ahead with closer integration and operation of the two systems. This was going to be made easier with other simplifications that are already progressing – Universal Credits, Real Time Information, Pensions etc
- An on-going parameter would be that NICs would retain its contributory principle. Fundamentally, as now, there is a desire to see tax and NICs as two separate elements
- However, retaining a separate identity is, in itself, no barrier to other reforms, e.g.:
- Aligning taxable and NI’able pay to be the same
- Reviewing benefits and consideration of ‘payrolling’ benefits
- The actual calculation itself – the earnings periods and the non-cumulative nature of NICs
- Importantly, all reforms would have to be cost effective, reduce burdens for both employer and Government, plus be consistent under bothUKand EU law
Chapter 5 – Engagement Strategy
- Any reform that is undertaken will, in the document’s view, take two Parliaments to deliver. This will allow for the necessary consultations, education and communication, plus legislative changes. An initial timetable is as follows:
| Winter 2011/12 | Working groups to develop reform proposals |
| Budget 2012 | Options identified and timetable confirmed |
| Spring 2012 | Stage 1 ‘high level’ consultation |
| Autumn 2012 | Stage 2 ‘refined’ consultation |
| Budget 2013 | Details of reforms announced |
| 2013 – 2015 | Legislation stages – consultation and Parliamentary stages |
| 2015 – 2017 | System changes at Government, employers prepare |
| Approx. 2017 | Reforms become effective |
- The document calls for the formation of working groups, and nominations for these are required by 22 November 2011
David Gauke, Exchequer Secretary to the Treasury identifies that there is much work to be done but that the benefits of reform do outweigh the work it will take to action them. We believe that the consultation and discussions that will result from this document offer a major opportunity for the payroll voice to be heard.
Further Information
- HM Treasury – Integrating the Operation of Income Tax and National Insurance Contributions
- Payroll Help 17 July 2011 – Views Sought on Integration of Income Tax and NICs
