Budget 2011: Government to consult on merging income tax and NI

The Chancellor George Osborne has announced the government will consult this year on options for integrating the operation of income tax and national insurance (NI) contributions.

The consultation will cover the options, stages and timing of reforms for a merger, which the government believes can remove distortions, reduce burdens on businesses and improve fairness.

However, it recognises that any change will be complex and involve a wide range of policy and implementation issues. It will maintain the contributory principle and will reflect this in any changes it brings forward.

In addition, the government will not extend NI contributions to individuals above state pension age or to other forms of income such as pensions, savings and dividends.

Osborne said: “This will dramatically simplify the tax system. For decades, we have run national insurance and income tax as two different taxes and forced businesses large and small to operate two different system of administration. The resulting anomalies are legion and it imposes totally unnecessary cost and complexity on employers.”

Colin Keane, senior director at Alvarez and Marsal, said: “I agree there should be openness regarding the combined rate of NI and income tax. The use of the word ‘operation’ suggests that this could be an administrative reform, rather than a change to the fundamental principles of the two systems.”

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