Profession calls for merger of NI and income tax

Industry insiders have called for the investigation, claiming it would benefit employers as reducing the two levies to one would make it easier for them and save money in administration.

Speaking at the Chartered Institute of Taxation’s recent agm in London, Nicholas Dee, interim head of tax at mobile telephone network Orange, said: ‘Income tax and national insurance should be combined. It is time the government stopped maintaining the fiction they are different. They should just harmonise the system as it would save on compliance costs. Harmonisation would be an overall benefit to industry.’

The call to merge NI with income tax comes in the wake of much acrimony over Gordon Brown’s decision to raise employers’ NI contributions by a single percentage point. That decision alone prompted criticism that SMEs were being unnecessarily burdened by the increase.

Harmonisation would mean savings on penalties when businesses make errors.

At the same time employees would enjoy greater transparency in their contributions.

John Whiting, PwC tax partner, added: ‘I believe we should have a study to look at whether to combine the two. It is time that we looked at the pros and cons of the merger.

‘Most people are saying this and even Treasury sub-committees are looking into the matter.’

The move may not be popular with the government as the rate of income tax would be highly visible, appearing at 41% or higher, while alternatively the claim cane be made that NI is a contribution to benefits.

Savings may also be made at the Inland Revenue in cost-savings for maintaining NI records. Indeed, since the Revenue took over the responsibility for NICs a few years ago, it has been steadily working on this area.

The Lib Dems have long campaigned to bring the two systems together, and the party is consulting with accountancy firms on the issue.

Matthew Taylor, shadow chancellor, said: ‘There is currently a massive burden of NI compliance. The system is immensely complicated for business, and the costs to the government and business literally run into billions of pounds. However, we cannot see any change in sight, especially as Gordon Brown has pledged not to push up income tax.’