NI and income tax merger plan political suicide
Derek Kelly, managing director at contractor, recruitment and SME services group Optionis, believes a merger would be an act of “political suicide” due to concerns over the impact on pensioners and employers.
The former KPMG director was responding to media reports – since played down by Downing Street – that the Conservatives could include a pledge to replace the separate levies with a single & lsquo;earnings tax’ in their 2015 general election manifesto.
Supporters of the idea, which was the subject of a Treasury consultation in 2011, claim it would create a simpler, more transparent tax system. Critics point to the scale and complexity of the IT project the change would necessitate.
Kelly said, “Merging NI and income tax is absolutely the right thing to do for taxpayers and the government. The current system is incredibly complex and is in desperate need of reform. However, I doubt the chancellor will have the courage to make it happen.
“There are several major questions that would need to be addressed for the merger to make it onto the Tories’ manifesto, as far as I can see.
“First of all, how will pensioners, whose pension income is exempt from NI contributions, be affected? Will they still benefit from a lower rate of tax if they continue to work?
“Secondly, what would happen to employers’ NI contributions? It has been reported that they would remain unchanged under the plan, but calculating them would be extremely difficult under a merged system.
“If they were to change, would employers end up paying more, or less? If it’s the latter, how would the shortfall be made up?
“Thirdly, given voters’ lack of trust in politicians, there is likely to be a widespread public assumption that a merger was a ruse designed to hike tax rates via stealth.
“This inevitable misconception would need to be addressed.”
Cheshire-headquartered Optionis is home to Parasol, ClearSky Contractor Accounting and ClearSky Business.