OTS expected to advise that Income Tax & NI should be merged

Following the General Election the Coalition Government set up the OTS to, among other things, overhaul the highly unpopular IR35 legislation, which requires contractors to prove that they are no de facto employees of their clients. However, it is understood the OTS will highlight in the interim report the difficulty of finding a workable alternative to the rules.

A source speaking to the Telegraph said that “There is a great deal of anger and frustration that the OTS missed an open goal and has ducked the issue of IR35 completely. Any move to merge National Insurance and income tax would be a long and controversial journey that would last for years and there is little political consensus for such a journey. In the meantime the spectre of IR35, which is accepted by all as discredited, would still be holding back the UK’s growing freelance sector at a time when the Prime Minister is encouraging ‘go-getters’ and declaring war on the ‘enemies of enterprise.’ Expect the sparks to fly when the report is published.”

However Ian Dewar, a small business tax convenor at the ICAS said that “The bringing together of NICs with income tax and the removal of the difference in rates between self employed and employed would not only introduce a huge simplification but also lessen concerns of tax loss due to employment status. Politically, the merger of income tax and NICs would require bravery as it would finally make people aware of their real marginal rates of tax. However, it would bring substantial benefits by simplifying the tax regime.”

The Office of Tax Simplification (OTS) is expected to publish its final report into small business taxation in the summer. Freelance Contractors around the country (and accountants / scheme providers) will no doubt be watching developments very closely.

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