U.K. Must Reform Social, Income Tax System, Independent Tax Chief Says

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By Ali Qassim

Nov. 3 — Large U.K. employers with lower paid staff could end up paying more tax in the future if the government aligns social and income tax systems, the head of the U.K.’s Office of Tax Simplification (OTS) said Nov. 3.

On the other hand, a company with “highly paid” workers could end up paying less, OTS Chair Angela Knight said at the opening of a conference in London organized by Payroll World.

This forecast was one of several “surprising” results that the OTS has found from its ongoing work on assessing the potential impacts of bringing national insurance contributions (NICs) and income tax processes closer together, Knight said.

The OTS launched a review into how to better align NICs with changing working patterns last March. It identified seven key stages for closer alignment and will publish a detailed report on all the potential impacts of changing the current system for NICs ahead of the government’s Nov. 23 annual pre-budget statement, Knight said.

Benefits of Assessing Impacts

Knight said it was vital for the OTS to provide the government with a comprehensive list of potential impacts to better inform how to transform its social and income tax systems.

Although governments in previous decades have proposed changes to NICs-which are widely considered to be too complex and misunderstood by companies and employees-no government has carried out a detailed assessment of potential changes, she said.

“One of the things the government can use the OTS for is to have proper discussions” on issues such as simplifying the NICs without the concern that any issues under debate “will be legislated in the next budget.”

Need for Change to NICS

Despite the fact that there will be inevitable ‘losers’ in future changes to NICs as well as winners, Knight said reforms to NICs were vital to match rapidly changing working patterns and the growth of self-employment.

“The current tax system does not fit the gig economy” in which “people are mixing and matching jobs” and there are blurred definitions between employee and self-employed contractors, she said.

She stressed that “if we carry on kicking the can down the road,” as previous governments have done, “the tax code will get more and more out of kilter” as it was created for “large employers, not for mobile businesses.”Knight said she was “fairly confident” that changes to NICs would come in about five years time as the government faces shrinking revenues from employment taxes and the growing self-employed seek a system where they also are entitled to some social benefits.

She said that even though Uber Technologies Inc. recently lost a lawsuit in the U.K., entitling its drivers to benefits such as the minimum wages, “other companies will continue to construct” new ways of contracting workers. “The change is there and you have to look at how to fairly tax companies.”

To contact the reporter on this story: Ali Qassim at correspondents@bna.com

Tp contact the editors on this story: Molly Ward at mward@bna.com

For More Information

More information on payroll issues in the U.K. can be found in the United Kingdom country primer.

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