National Insurance ‘roller-coaster’ presents implementation challenges
The Chancellor has set a challenging timetable for implementing cuts to national insurance rates announced today, says the Charted Institute of Taxation (CIOT). The Institute also points out that employer national insurance rates continue to be an incentive for businesses to contract with people as self-employed rather than employing them.
Colin Ben-Nathan, Chair of the CIOT’s Employment Taxes Committee, commented:
“The national insurance roller-coaster continues, with the Chancellor announcing more short-notice changes today. After increasing rates in April last year, increasing the NI threshold in July last year and then reversing the rate increase in November, we have another in year change to rates announced today.
"Payroll and software providers may find it a challenge to get systems updated in time, as may HMRC. 6 January may feel a long way away but it is quite soon in terms of updating payroll software, especially with Christmas and new year in that period.
“Given the ‘on or before’ requirement to file RTI (real—time information) returns by the date an employee is paid, and the need for most employers to run their payroll ahead of pay day, such that some payrolls can ‘close’ a month ahead of payrolls (for some larger businesses anyway), the likelihood is that for some employers their payrolls will be processed before 6 January, which will complicate matters.”
Imbalance between taxation of employment and self-employment
Reducing national insurance contributions (NIC) for employed people by two per cent, while only reducing that for self-employed people by one per cent, reduces the differential between the NIC paid by the two groups. However CIOT points out that the imbalance between the tax burdens on employment and self-employment remains large, mainly because of the 13.8 per cent cost of employers' national insurance.
Colin Ben-Nathan explained:
“The tax incentives to be self-employed rather than employed and to hire self-employed contractors rather than employees remain, and continue to encourage ‘false self-employment’.
“The government should work with stakeholders, businesses, unions and individuals with a view to agreeing a sustainable solution to how earnings (whether from employment or self-employment) should be taxed, and how we might ‘level the playing field’.
“There should be a strategic review of how labour should be taxed in the 21st century and what should be done about employer’s NIC.”