Business leaders have overwhelmingly backed a call to merge National Insurance with income tax to help reduce costs, drive up wages and create jobs.
The support for a “radical” overhaul of the tax system comes as the Treasury is considering how to simplify workers’ taxes ahead of the Autumn Statement, which is expected to outline plans for a consultation on simplifying the tax system by next year’s Budget.
A survey of 1,125 businesses by the Institute of Directors, seen by The Sunday Telegraph , shows 79pc are in favour of merging pay-as-you-earn tax with National Insurance to reduce administrative burdens and eliminate the “worry” of facing penalties for getting it wrong.
A report by the TaxPayers’ Alliance, published alongside the IoD research, calls for the Government to abolish both employers’ and employees’ National Insurance (Euronext: SIN.NX - news) tax, arguing that it is “opaque” and “needlessly complex”.
Workers, not companies, end up paying employers’ National Insurance contributions either through lower wages or higher unemployment, the report claims, which damages industrial relations and ruptures the relationship between public and personal finances.
National Insurance, which “chokes economic growth and destroys jobs”, should be scrapped from 2017, with entirely new rates of income tax, the report said.
At present the Chancellor has ruled out merging PAYE tax with National Insurance. But the Government has been looking at how to integrate the “operations” or administration of both taxes.
John Whiting, tax director at the Treasury’s Office of Tax Simplification, which first mooted the idea of merging income tax and National Insurance contributions, said “an awful lot of work” was going on behind the scenes and he “anticipated a further document” outlining options for reducing tax burdens in next month’s Autumn Statement.
Possible measures include bringing weekly National Insurance contributions into line with yearly income tax payments and overhauling tax for the self-employed, who currently pay two types of National Insurance.
Mr Whiting, also the tax policy director at the Chartered Institute of Taxation, said it was unlikely the Chancellor would consider fully merging both types of taxes in the short term, but added: “If businesses keep calling for both taxes to fully merge, then who knows. Employers see this as one of the most complex areas of doing business.”
The TaxPayers’ Alliance said that workers currently believe they pay tax of just 20pc on their earnings, when in fact the figure is closer to 40.2pc when counting National Insurance contributions as well as PAYE.
The organisation is calling for greater transparency on payslips so employees know exactly where their money is going, as well as bringing down the overall level of tax to around 30pc over time.
Rory Meakin, research associate at the TaxPayers’ Alliance and author of the report, said: “National Insurance is a very destructive tax that stops employers creating jobs. George Osborne has already called for the operational elements of NI and income tax to merge, but he could go a lot further.”
The report builds on an earlier study by the TaxPayers’ Alliance and the IoD called The Single Income Tax which suggested one figure of 30pc.
“Almost all groups benefit directly from the proposals in this paper,” the TayPayers’ Alliance said in the new paper. Employers benefit from a simpler, more transparent system with a lighter administrative burden.
“Four out of five IoD members agree that National Insurance should be fully merged with income tax.”