National Insurance reversal – CIOT comments on challenging timetable

On the setting of 6 November as the date for the change, CIOT Director of Public Policy John Cullinane said:

“This will be challenging. 6 November may feel a long way away but it is quite soon in terms of updating payroll software.

“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 payrolls can ‘close’ a month ahead of payrolls (for some larger businesses anyway), the likelihood is that many payrolls and RTI filings will take place before 6 November, where payday is on or shortly after that date.

“We note that HMRC have acknowledged that the timeline for this change is tight and that some employers may not be able to implement the changes in time. HMRC have indicated that they will be directing employees to their employers to correct any overpaid NICs in the first instance.

“While 6 November is probably do-able for most payroll providers that is only because we understand some software providers have already started rewriting their software in anticipation. Perhaps the bigger question is whether HMRC can update their systems in time, although they have provided some assurance that their Basic PAYE tool will be automatically updated for these changes.

“This kind of in-year change is much easier to do for national insurance than for income tax because income tax is levied on your annual income, whereas NI (for employees) is levied for each earnings period (so typically monthly or weekly) without reference to any previous pay or NI deductions.”

On the implications of today’s announcement, John Cullinane said:

“When the Health and Social Care Levy was announced we said that it would:

• Increase the gap between the taxes the Government get from someone being employed and someone being self-employed
• Increase the gap between tax people pay on their employment income and tax they pay on income from renting out property
• Increase the share of taxes that come from employment income overall, partly in order to help people retain and pass on their wealth
• Potentially set a precedent for including people of pensionable age within the scope of National Insurance

“Today’s announcement, and the legislation published this afternoon, reverses these effects, but only returns us to the position of six months ago.

“It remains the case that employer NICs will continue to be an incentive for businesses to contract with people as self-employed rather than employing them. They also still may be tempted to encourage, or require, their self-employed contractors to incorporate. Those affected usually lose out on employment rights such as the national minimum wage, holiday pay and sick pay, as well as costing the Government money in tax revenues not received.”

CIOT has welcomed the Government’s confirmation it will keep the national insurance threshold at its current level, aligned with the income tax personal allowance. John Cullinane said:

“Alignment of the income tax and national insurance thresholds was a welcome move when the Government announced it in March. Not only did it represent a welcome boost for those on lower incomes, it also brought some much-needed simplification to the tax system.

“We hope that in future income tax and national insurance thresholds will be increased in tandem.”