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UK Looks Into Simplifying Income Tax, Social Security

by Robert Lee, Tax-News.com, London

22 July 2015


The UK's Office of Tax Simplification (OTS) has launched a review into proposals to more closely align income tax and National Insurance.

On July 21, the OTS published the terms of reference set by the UK Government. The OTS will publish a final report ahead of Budget 2016, and may publish interim findings and/or calls for evidence during its work.

The OTS will consider the case for reform, the costs and benefits, and the potential impact of the changes. It will look into the likely effect on how well taxpayers and businesses understand the system and also its likely impact on compliance burdens, avoidance risks, and revenue.

In 2011, the OTS recommended that the income tax and National Insurance systems be better aligned. It set out a number of stages that could be taken to implement this, while stopping short of proposing a full merger. In the subsequent Competitiveness Review and its Employment Status report, the OTS reiterated the difficulties caused by the differing systems and suggested that closer alignment would improve the UK's competitiveness and help rectify employment status problems.

Income tax applies (in principle) to all income. National Insurance is levied on employment earnings and self-employment profits, but not on other forms of income such as savings, pensions, or investments. Self-employed persons pay NICs at a lower rate than employees and but they have a lower benefit entitlement.

TAGS: compliance | tax | investment | business | pensions | government committee | employees | United Kingdom | tax thresholds | self-employment | tax rates | social security | revenue statistics | tax reform | individual income tax | Employment

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