Tax thinktank urges merger of NICs and income tax
Posted by Dan Martin in Finances, Regulation on Thu, 10/03/2011 - 16:38
The merger of income tax and national insurance contributions has been recommended by the body set up by the government to suggest ways of simplifying the UK tax system.
Releasing a report into small business taxation, the Office for Tax Simplification (OTS) said the bringing together of the two systems would reduce the administrative burdens faced by entrepreneurs.
"The integration of income tax and national insurance, including reducing the differential between rates applicable to different incomes and legal forms, could, for example, remove much of the pressure on the employment and self-employment boundary and should result in the IR35 legislation becoming obsolete," the report said.
IR35 has been an issue of contention for small businesses and freelancers for many years. Campaginers say that the system, which governs who must be treated as an employee of a company for tax purposes, prevents people from going freelance and discourages business growth through the lack of clarity with its enforcement.
The OTS said the complexities of IR35 mean that it should be suspended or HM Revenue and Customs should improve the way it is administered until structural changes are introduced which removes the need for it to exist.
Chris Bryce, chairman of the Professional Contractors Group said: "Should the chancellor accept the recommendation to abolish IR35 this would be a major advance towards honesty, transparency and fairness for the freelance community.
"We have been telling the government and all interested parties that IR35 was not fit for purpose. We now call on the chancellor to opt to suspend IR35 with the view of permanent abolition. This would remove a shadow that has hung over the UK freelance community for over a decade and be a massive vote of confidence in this skilled and flexible community."
Among the OTS' other recommendations were reform of employee expenses, capital allowances and VAT rules. It also called for simplification of Entrepreneurs' Relief, Venture Capital Trusts and the Enterprise Investment Scheme.
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