Flexible workers could be disproportionately affected by new plans by the Office for Tax Simplification (OTS) to introduce a single payment system for income tax and national insurance contributions (NICs).
The OTS has put forward the new plans in an attempt to make the system easier for workers to understand after the financial secretary to the Treasury, David Gauge, described the two systems as a “major source of complexity for taxpayers”.
The introduction of a single payment could be bad news for contractors and self-employed workers, however, as they generally pay a lower rate of NICs compared to their permanently-employed counterparts. It would also be particularly impactful on high-earners.
Chas Roy-Chowdhury, head of the Association of Chartered Certified Accounts (ACCA), said: “The fact is, however, that the government has been here before a number of times, and a great deal of work went on to explore the potential of the merge, but there simply hasn’t been the political will to get the initiative over the line.”
Aligning both systems was first proposed by chancellor George Osborne, with a review by OTS in 2011 concluding that the two systems currently add unnecessary bureaucracy and confusion. The organisation will now deliver another report on the matter ahead of the budget in 2016.
This review will analyse the costs and benefits of a single system and evaluate whether it would improve compliance burdens for employers. The Independent has suggested that a new ‘earnings tax’ system would result in a 10% increase to the current levels of income tax.