Govt begins work on 2017 NI reform

The government is set to create working groups to begin reforming the income tax and national insurance contribution (NIC) systems.

Her Majesty's Revenue and Customs (HMRC) and the Treasury (HMT) ran consultations between July and September this year asking stakeholders to identify problems with the current system, after the government promised reform at Budget 2011.

HMRC announced today that it will work with stakeholders further on specific areas of NI and income tax, before consulting publicly again in 2013 and putting reform in place by 2017.

Specifically, this round of consultations with working groups will focus on removing the burden of NI and income tax administration on employers.

To do this, the government departments will consider the suitability of:

• Basing NI on the tax year;
• Basing liability for NI on earnings over the year to date, instead of assessing independently in each pay period;
• Including earnings across employments for NI, rather than assessing earnings from each employment separately.

These consultations will also look into improving the efficiency of the government's administration of income tax and NI.

HMRC said it will examine the possibility of making cuts to its compliance operations in particular.

The consultation does not propose any changes to the contributory principle of NI, and does not propose to extend NI to pensioners.

HMT and HMRC will now consult with working groups on the issues highlighted and create further consultations based on those working groups' conclusions after Budget 2012.