Do you think National Insurance should be merged with Income Tax? it could happen soon

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The Tax Payer’s Alliance have been  campaigning and it looks like the Chancellor, George Osborne, has agreed that the first step is to re-name National Insurance as “Earnings Tax”. The change is to be proposed in legislation this week.

This story was reported in the Telegraph on 23rd February. There is also an interesting article on Tax Research UK (Richard Murphy).

You pay National Insurance contributions to build up your entitlement to certain state benefits, including the State Pension.

You pay National Insurance if you’re:

  • 16 or over
  • an employee earning above £149 a week
  • self employed and making a profit over £7,755 a year (Class 4) plus £2.70 per week Class 2 NI (you may not have to pay any Class 2 NI if your profits are below £5,725)

If you’re employed, you stop paying Class 1 National Insurance when you reach the State Pension age.

If you’re self-employed you stop paying:

  • Class 2 National Insurance when you reach State Pension age (or up to 4 months after this to pay off any contributions you owe)
  • Class 4 National Insurance from the start of the tax year after the one in which you reach State Pension age

Income Tax is whole different ball game. Whilst I can see its simpler to have one tax the changes that would be required to achieve it would be huge!

Is it worthwhile?




9 thoughts on “Do you think National Insurance should be merged with Income Tax? it could happen soon

  1. I think all taxes on earnings should be abolished !

    Now before you dismiss this as an idealistic impossibility consider this –

    Most of the drivers for economic growth and stability surround themselves with consumption

    There is growing support for a SINGLE tax system based on user pays – VAT !

    If the rate of VAT was raised to 30% on all goods a few things would change

    — cheating the system would be dramatically reduced
    — a totally FAIR system would emerge where all citizens would contribute equally to roads schools border control foreign policy and the like
    — the government would be able to slash the workforce costs of employing thousands of people who currently are associated with collecting and enforcing current tax methods

  2. Of course the two should be merged. There are no difficulties in so doing, as all age-related issues can be dealt with using age allowances, and savings and dividends already have their own tax rates. It could be done in next month’s budget.

    Unless, of course, we move over entirely to taxing spending rather than income.

  3. Hypothecated taxation does not exist in the UK, so NI is just general taxation which causes considerable additional work for professionals and the Government to collect as it has different rules to any other tax.

    There should be no NI.

    Employees’ NI should be consolidated with individuals’ income tax into higher tax rates overall – but at a simple lower rate across the board (say 5%).

    Employers’ NI is a tax on employment, and does not encourage businesses to employ people. It should therefore be abolished.

    There would be significant savings to the Treasury in terms of NI administration, and further savings to UK plc.

  4. There would of course be screams of pain from those who do not pay a fair share of tax – namely the self-employed and pensioners. But it would be VERY beneficial for UK plc if this obvious simplification was undertaken.

    1. I’m interested by your assertion. On what bass do you believe that these two groups do not pay a fair share? And who decides what is fair?

      1. Simply that the self employed pay considerably less NI tax than employed people (for only very marginally lower benefits) and pensioners pay no NI tax and indeed are the recipients of benefits (i.e. State pension) that is not paid to the employed.

        The short sighted politically inspired actions of Gordon Brown in pushing up NI whilst pushing down Income Tax only exacerbated the problem.

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