To think ni and income tax should be rolled into one?

[Biwurlu]

Wouldn't that make everything a bit more fair and less confusing?

I've got nothing against my in-laws they were lucky to be born at a good time for jobs and pensions. But they do pay less in tax than we do and earn a bit more than we do from their pensions which doesn't seem right to me

I thought they were?

I’m self employed and only pay one lot of tax every January and July.

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Butchy, they’re paid together but the rates are different and have separate max/min limits etc, don’t worry!

Biwurlu, is the issue in your view that retired people don’t pay NI?

Phewww. 👍

The NI rates are 12% dropping to 2% and income tax is 20%, 40% rising to 45%. In most cases the amalgamation would lead to confusion and a perceived rise in tax rates. That may be difficult politically though nobody would pay more.

Definitely. It essentially all goes into a big pot anyway. It would stop all the arguments with regards to the "I have paid my NI all those years and should be entitled to XYZ" and believing it is your pot of money. It isn't. It is general taxation and with regards to pensions helps pay for the current OAP's, rather than being saved for you.

Not just that, more it's confusing having these different taxes. I feel like they do them separately to make them seem like less and higher payers pay less ni as the rate drops

I think a simplified tax system would be better.

Especially as ni isn't put away in a sovereign wealth fund or anything and just goes to the same place.

It's not just the different rates and thresholds.

Another major issue is that NIC is charged on some kinds of income, but not others.

NIC is charged on wages and non incorporated business profits.

It's not charged on interest, dividends, property income, foreign income, trust income nor pension income.

So, people with the same income (but different sources) can pay very different amounts of NIC.

Someone, with, say, several properties being rented out doesn't pay NIC because the rules say it's not a business.

NIC is currently basically an extra tax on working.

And the other problem with NIC is that you never actually have to pay any NIC to get full state benefits.

I.e. you get "credits" for home responsibilities protection, whilst on some benefits, and at low income levels you can get a "credit" by earning just above the lower threshold but not actually earn enough to pay NIC.

It's basically just a tax by a different name.

I've always thought this. I'm sure there is a reason, but can't for the life of me think of any.
The saving on running 2 systems would (after transition) be immense.
Unless it's the fallout there'd be from closing a huge government department with thousands of job losses.

It sounds like maybe NI has outlived it's usefulness in terms of setting entitlement to pensions and benefits, but merging it into general taxation would be unpopular as it would probably mean a tax rise for the group of the population who are disproportionally more likely to vote, pensioners. So it's probably not going to happen.

Income tax is calculated on cumulative income over the tax year whereas NI is calculated on the income in each individual tax week, ta month etc. Just one other difference between the two.

Income tax is calculated on cumulative income over the tax year whereas NI is calculated on the income in each individual tax week, ta month etc. Just one other difference between the two.

Only for employees though. Self employed/business pay it according to annual profits.

Another disparity is that it's "per job". So someone earning £15k in one job pays NIC, but someone else with 2 part times jobs each earning £7.5k doesn't. How unfair is that? Just another "penalty" on full time workers.

This would be problematic for inbounds to and outbounds from the UK, as the rules governing whether you need to pay NI when you’re working overseas, or are working in the UK having come in from overseas, are very different to the rules on whether you’re liable to pay UK income tax!

All countries tend to keep their tax and social security systems separate, it would be a minefield (and very expensive) to try to unpick it all, and what would the real advantage be?

Just because lots of countries do it doesn't mean it's right.

It would mean a much simpler tax system, the number of tax codes in the UK are ridiculous.

Why should someone that inherited assets pay less tax than someone that goes to work?

Could be a much fairer system.

I just want to pay less tax full stop!!

One of the biggest issues I think, is that people over state retirement age do not pay NIC even if they carry on working, they just pay income tax. So if the two were rolled into one, then people who had income above the tax threshold would pay more tax, even if they were retired and didn't work, which could make a big difference to someone who is only just over the tax threshold. If the rates remained the same, and NIC was just added to income tax, then they would pay 12% more tax...I don't think I have explained that very well, so I hope it makes sense - I'm useless at turning my thoughts into written words

is that people over state retirement age do not pay NIC even if they carry on working

And people under state retirement age who've taken early retirement, don't pay NIC on their occupational pensions which are really delayed wages.

It's all a mess, an outdated relic from a by-gone age.

Re your valid point, it would be easy enough to bring in a higher personal allowance for those over a certain age to compensate for those worst affected, such as an OAP personal tax free allowance of £15,000 instead of £12,500 for everyone else. We used to have a higher PA for OAPs until fairly recently when they were alligned. A different tax code for OAPs is a hell of a lot easier than HMRC administering two completely different systems.

But tax wouldn't need to be 12% more. There'd be so much income subject to the combined rate, it could be set to something like 25% to bring in the same amount, when you factor in all the property letters, dividend/interest recipients, trust/foreign income recipients and taxable state benefit recipients into the mix. That would be a real benefit to the workers, particularly the well documented squeezed middle!

I agree, OP.

I think it's wrong that NI kicks in at such a low income (approx £700 a month), so hits the low paid and part-time workers, whereas raising tax thresholds means that no-one pays income tax until they earn over £1,000 a month. The thresholds were linked for many years.

However, there would have to be some sort of tax on employers, as they currently contribute over 13% of the pay of staff whose earnings are above the secondary NI threshold. There would need to be a way of recouping that without making workers poorer.

I just want to pay less tax full stop!!

But are you prepared for our (already pretty shitty) public services to be cut to pay for it @PhilCornwall1 ?

And if so, which ones? Benefits for the sick and vulnerable? The NHS? Our crumbling schools and overworked teachers? Our burned-out and demoralised police officers? Cash-strapped councils who can't mend the roads, keep the libraries open or look after old people?

I'd like to be left with more money, but not at the cost of any of the above. Given that this government is never going to make the rich pay more or clamp down on tax loopholes, I'll just have to suck it up.

@Biwurlu I’m not saying that other countries do it therefore it’s right.

What I’m saying is, due to the rules around Brits going overseas to work, and people coming here to the UK to work, we as a country would have huge issues implementing this unilaterally.

Whilst I agree that tax in the UK could be simpler / fairer / better in all sorts of worthy ways, I would suggest that combining income tax with NI is hardly a good way in which to achieve that!

I agree they should ideally be merged. While NI was being phased out, I'd treat employer contributions as an employer contribution to the employees tax bill, which means they would be a taxable benefit, but also a prepayment of the overall bill, so overall the change would be helpful to the employee, if it were not for the fact that tax rates would change to as far as possible neutralise any change to net pay.

You could have lower tax rates on pension income without have NI as a separate tax. Might be necessary, particularly as I know two nice countries where my UK pension would not be taxed at all, so I wouldn't have to put up with a basic-rate band of circa 40%.

I agree OP, the powers that be must think we are stupid if they think we don't realise we are paying two lots of tax. It would be much cheaper to administer one combined rate of income tax plus the higher rate.

And employers could pay a higher rate of corporation tax/equivalent for non-corporates.