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Hard choices for national insurance

How can we more closely align income tax and NIC, and why is this important?

Where we are now

In 2015 we published a paper on improving the future UK tax system, which outlined four options for managing the future of NIC: merge, manage, de-merge and make do. The Office of Tax Simplification (OTS) has since produced detailed proposals which consider options for reform similar to our manage option.

Our latest report highlights the key areas of the OTS proposals, identifying benefits and issues with the suggested approaches and summarising what taxpayers and employers can expect.

The four options for managing NIC

Our 2015 report explored exactly where taxpayers’ national insurance and income tax contributions go, while busting some common myths about how these taxes are spent by the Government.

The report provided detailed analysis of the tax systems for every taxpayer and presented four options for policymakers to manage NIC:

  • Merge: a full-scale merger
  • Manage: align the rules of income tax and national insurance contributions as far as possible
  • De-merge: return national insurance contributions to its roots as a separate insurance-based system
  • Make do: continue with the system that has served us for more than 65 years

Watch the video

ICAEW tax expert and report author Peter Allen explains the past, present and future options for national insurance contributions.