Income tax and NICs will not be merged in this parliament

Bill Dodwell, one of the tax partner’s at Deloitte, has said it is inconceivable for National Insurance and income tax to be merged during the current parliament.

The OTS has said that a merger would simplify the system but as Mr Dodwell pointed out NICs are not paid on pensions or income from savings. The government is not going to increase the tax on pensioners, he said.

Apart from that, the thresholds and limits are different for tax and NICs. The system will only be merged in the country can afford to give away a lot of money, he concluded.

Meanwhile, accountants in London and other major UK cities may be interested in the latest government proposals regarding the taxation of pensions.

Last week, the Treasury announced how it plans to implement the introduction of the annual tax free allowance of £50,000. The current rate stands at £255,000. Under the plan, members will be able to request that their pension scheme settles their tax bill.

As a result of this change, it will be up to the scheme to work out the reduction in their members’ benefits.
Mike Smedley, a pensions partner at KPMG, said members will no longer need to worry about paying the income tax bill on their contributions. And having it paid directly from their account will result in a 67% tax rate for higher-rate taxpayers, instead of the 88% they would pay if they took responsibility for the payment themselves.

Currently, the majority of employers do not reduce staff benefits if they breach the annual allowance and this new scheme could be put into use more frequently than the Treasury expects.

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