Tax and NIC merger proposal

OsborneViewpoint

It is rumoured that, in tomorrow's budget, the 20% income tax and 12% new NIC will be merged into a basic rate of income tax of 32%.
If this were to happen, then will retired pensioners, who at present already draw their pension and therefore have no reason to keep paying NIC, suddenly find that their pension income is to have a starting rate of tax of 32%?
If simplification of the tax is the main aim of the Treasury, how will they "simplify" the reducing pensioners' income tax from 32% to 20%?
Or is the aim that this new 32% rate apply to everyone?

RobStaffs

OsborneViewpoint wrote: »

It is rumoured that, in tomorrow's budget, the 20% income tax and 12% new NIC will be merged into a basic rate of income tax of 32%.
If this were to happen, then will retired pensioners, who at present already draw their pension and therefore have no reason to keep paying NIC, suddenly find that their pension income is to have a starting rate of tax of 32%?
If simplification of the tax is the main aim of the Treasury, how will they "simplify" the reducing pensioners' income tax from 32% to 20%?
Or is the aim that this new 32% rate apply to everyone?

This was on Radio 4 today.
Increasing tax on pensions via NI was described as the biggest act of political suicide since the poll tax and a guaranteed vote loser.There is no doubt NI and Income tax will be combined.It makes economic sense to do this. But it wont happen for a few years yet. It is expected that a working group will be announced tomorrow.The issue has to be managed carefully.Effectively you are increasing tax to 32% and 52% respectively.Whilst this will not result in lower net pay is still need to be marketed properly.

Andy_Davies

I'm not sure it will be 32% and 52%, people in the high rate tax band actually pay 41% at the moment as the NICs get capped.

Andy

Gas_Powered_Toothbrush

This is possibly the most stupid idea ever, and I'd expect nothing else from Gideon Osborne.

barak

OsborneViewpoint wrote: »

It is rumoured that, in tomorrow's budget, the 20% income tax and 12% new NIC will be merged into a basic rate of income tax of 32%.
If this were to happen, then will retired pensioners, who at present already draw their pension and therefore have no reason to keep paying NIC, suddenly find that their pension income is to have a starting rate of tax of 32%?.....

As RobStaffs says ".....it wont happen .....yet."

And as I posted elsewhere -
".....the recent "Office of Tax Simplification" report states:-
"Obviously, the position of pensioners, who currently do not pay NICs will need to be considered thoroughly."

http://www.hm-treasury.gov.uk/d/ots_...rim_report.pdf

John_Pierpoint

There are some tax payers who actually think that NIC is actually going to an insurance fund.
Obviously proving to them that it is just another tax amongst the dozens we pay, would be counter productive in the business of complexity tax raising.

Pennywise

Tax wouldn't need to go up so much. It would end up about 25-30% because self employed only pay 9% at the moment, and there is so much "unearned" income, i.e. dividends, property income, pensions, etc currently with no NIC, where tax revenue would increase.

Re pensioners, easy to fix. Increase the age personal allowance to about £15k which would be a vote winner, then scrap the £22k threshold where currently the age allowance is tapered away - currently pensioners with incomes of over £22k pay a 30% marginal rate. Those with income under £15k would pay no tax - those between £15k and £22k would pay more tax on a smaller amount of income - probably no effect. Those on £22k to £29k ish would be no worse off either, maybe better off. It would really only affect those with incomes over £30k and there's relatively few of them and they won't get much public sympathy if they have incomes in retirement higher than the average worker!

It's a brilliant idea - NIC has just been another tax for decades, and it's been unfair as it's only applied to workers. It's about time those living on investment incomes, dividends, interest, property lettings, etc., paid the same amount of tax as the workers. Also about time we started down the road of tax simplification - it's been ridiculous having two different sets of rules, administration, collection, etc., when we all know NIC is just another tax, and not a very fair one at that.

Done properly it's not a vote loser. There are more workers than non workers. It could actually mean the workers pay less tax as they won't be paying 32% anymore - it'll be more like 27%. It's political genius IF done properly - the question is whether George will have the guts to do it.

ceeforcat

Yes Pennywise but let's hope it is fully explored before implementation. There are potentially some losers e.g. those with two part-time jobs unlinked , say earning £7000 in each - will they still benefit from two exempt NIC bands? Potentially £800ish worse off if not - just a thought! I suppose there are always winners and losers - just seems those at the lower end of the scale generally lose most in percentage terms.

Pennywise

ceeforcat wrote: »

Yes Pennywise but let's hope it is fully explored before implementation. There are potentially some losers e.g. those with two part-time jobs unlinked , say earning £7000 in each - will they still benefit from two exempt NIC bands? Potentially £800ish worse off if not - just a thought! I suppose there are always winners and losers - just seems those at the lower end of the scale generally lose most in percentage terms.

Yes, quite right, but the current NIC free threshold is £5,700 p.a. for 10/11, which is increasing to £7k for 11/12, so those you mention with 2 P/t jobs of £7k each are a lot better off for 11/12 anyway, with no NIC and less tax because of the rising of the personal allowance. If the personal allowance rises again to say £8.5k for 12/13 and £10k for 13/14, then if the tax/NIC rate was merged during 12/14 they wouldn't be any worse off overall.

But, is it really right that a person with 2 part time jobs earning a total of £14k should pay less tax/nic than a person with one job earning £14k. That can't be just, so it's just another example of why merging the tax and NIC is actually a damn good idea, like I said, IF done properly.

ceeforcat

I agree completely Pennywise - it isn't right that two part time jobs incurs less NIC - just pointing out potential losers (£7000 was a bad example, wasn't it?). I just hope it is achieved with thought and we have no repeat of, for example, removal of 10p tax band disaster

Pennywise

ceeforcat wrote: »

I agree completely Pennywise - it isn't right that two part time jobs incurs less NIC - just pointing out potential losers (£7000 was a bad example, wasn't it?). I just hope it is achieved with thought and we have no repeat of, for example, removal of 10p tax band disaster

Signs are good - we seem to have moved away from Gordon's "back of fag packet" changes that happened almost immediately without any proper scrutiny, towards longer term changes over a number of years, after more thorough consideration from various committees/reviews, etc., such as the Office of Tax Simplification. Hopefully, the likes of Gordon's stupid 10p rate fiasco won't be repeated (not to mention the 0% small company tax rate, or IR35, or taper relief, etc etc.).