In March 2016 the Office of Tax Simplification (OTS) published 'Closer alignment of income tax and national insurance contributions' its simplification review and identified 84 "misalignments and differences" between the two.

The key findings of the OTS based on their review and the responses from their survey are that:

  • The current NIC system does not supports the UK’s flexible workforce model, diverse business structures and flexible reward.
  • The inherent complexity of NICs means the regime is not well understood by employers or individuals, and is complex to administer.
  • There is a distortion built into the system so that two individuals with the same gross income, constituted differently, may have very different NICs outcomes, and possibly be entitled to different benefits.

The report sets out a seven-stage plan to bring Income tax and NIC closer together, and considers in detail the challenges and benefits of each of the following steps:

  1. Move to an annual, cumulative and aggregated assessment period for employees’ NICs on employment income, similar to that for PAYE income tax.
  2. Base employers’ NICs on whole payroll costs.
  3. More closely align the NICs position, and potentially the benefit entitlement, for the self-employed with that of employees.
  4. Improve the transparency of the NIC system, and explain the contributory principle.
  5. Align the employment income legislation for IT and NICs so that definitions are the same and taxpayers benefit from identical reliefs for IT and NICs purposes.
  6. Bring taxable benefits in kind into Class 1 NICs and abolish Class 1A NICs.
  7. Align legislation and procedures, and where possible the rates and thresholds, and introduce a joined up approach for income tax and NICs laws and practice.

A comprehensive summary of the 84 "misalignments and differences" between income tax and NIC identified by the OTS as part of their review is included in the report.


See OTS: Closer alignment of income tax and national insurance contributions 

For further updates on these proposals see Finance Acts rolling planner 2016/17.