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Budget 2011: National insurance and income tax merger

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Will income tax and national insurance be merged? Here’s what the Chancellor had to say in the Budget.

The short version:

Merging income tax and national insurance is still being considered, but it will take several years before anything concrete happens.

From the horse’s mouth:

Chancellor George Osborne said:”For decades, we have operated Income Tax and National Insurance as two fundamentally different taxes and forced businesses large and small to operate two completely different systems of administration, with two different periods and bases of charge.

“The resulting anomalies are legion. And it imposes totally unnecessary costs and complexity on employers, and costs the taxpayer in the extra burden it places on HMRC.

“So I am announcing today that the government will consult on merging the operation of National Insurance and Income Tax. I am not proposing we extend National Insurance to pensioners, or to other forms of income, or that we abolish the contributory principle.

“Our purpose is not to increase taxes, it is to simplify them. And this huge task will therefore require a great deal of consultation and take a number of years to complete. But it’s time we took this historic step to simplify dramatically our tax system and make it fit for the modern age.

Our verdict:

Merging national insurance and income tax just makes sense: it’s a huge burden for Britain’s SMEs. While it’s disappointing to hear that it will take several years before anything concrete happens, it’s understandable. The last thing we want is for HMRC to do this in a hurry and get it wrong. So, in this case, patience is very much a virtue.

Your verdict:

Charlie Mullins, founder of Pimlico Plumbers: “Taking the first steps to merging Income Tax and National Insurance demonstrates that red tape can be cut – it may put some of the pencil pushers out of work, but it will keep the rest of us in business.”

Ed Molyneux, founder of FreeAgent: “Today we heard confirmation from the Chancellor that the Office of Tax Simplification proposals are to be progressed. This is very welcome because one of the heaviest burdens for a small business in the UK is the disproportionate cost of tax and accounting compliance which adds no business value. The combination of new technology the eminently sensible proposals from the OTS report – the merging of NI and Income Tax in particular – will go a long way to reduce these outrageous compliance costs.”

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