Budget 2011: National Insurance to be incorporated in income tax

CHANCELLOR George Osborne announced today he has embarked upon a review of national insurance with a view to incorporating it into income tax.

Mr Osborne said the measure would “dramatically simplify the tax system”.

“For decades, we have run national insurance and income tax as two different taxes and forced businesses large and small to operate two different system of administration,” he told Parliament in his 2011 Budget.

He said that this created anomalies that are “legion”, adding that the current two-tier system “imposes totally unnecessary cost and complexity on employers”.

“Our purpose is not to increase tax – it is to simplify them,” he said.

He described the measure as a “huge task” that would take years to complete.

“But it is time we took this historic step to simplify dramatically our tax system and make it fit for the modern age,” Mr Osborne added.

Taxes will also be aligned with the consumer price index, as opposed to the retail price index.

This would bring taxes in line with benefits and be one of a number of measures introduced to help simplify the UK’s tax system.

In total, he said the Government had abolished 43 different tax reliefs which would remove 100 pages from the UK’s tax code.

Graeme Crawford, tax partner at Ernst & Young in Birmingham, said: “The Chancellor’s message to entrepreneurs and wealth creators is that the UK is once again seeking to be welcoming.

“The changes to the tax regime for non-domiciles will encourage investment in the UK and the prospect of the abolition of the 50p income tax rate is now clearly a short-term possibility.

“Together, these measures should help promote the UK as a location of choice.”

Mr Osborne also reasserted his pledge that the 50% higher band of income tax affecting wealthier taxpayers was a temporary measure.

He said that, although it was not the right time to remove it, he had asked HMRC to review the amount of receipts generated to see how much money it actually raised.

He argued that it would “do lasting damage to our economy if it were to become permanent”.

The Chancellor also increased the annual levy placed on non-domiciled residents in the UK from £30,000 to £50,000, but countered this by removing a tax charge incurred by non-doms when money was brought in to invest into British businesses.

Mr Osborne also said that the £1,000 rise in personal tax allowances due to be introduced next month would be followed by a further £630 increase next year. This will lift the personal tax allowance threshold to £8,105.