Government plans to combine PAYE and NIC into one tax

There are reports that the conservatives are thinking of combining the current two payroll tax systems into one unified system as a policy for the next General Election.

This would allow all taxpayers to see the true rate of tax taken by the government as the amount paid under NIC is generally misunderstood in the public’s mind as it is hard to calculate given the various bandings and contribution tables within NIC.

Currently a combined PAYE/NIC rate would rise for the 20% basic rate to around 32% and from a higher rate taxpayer on 40%, up to 52%.

For me. this makes eminent sense, in that:

  • It does away with part of the complicated tax system.  Why have two separate taxes, when they all go into the same pot.
  • It makes it more difficult for politicians to raise a ‘stealth tax” as NIC was never in the public’s mind as a tax as such, when it very much is.
  • It lets all taxpayers see how much as a percentage of all their earnings the government takes after deducting your personal allowances.
  • It should lead to greater pressure from the voters/taxpayers to lower taxes generally.

Of course, they would need to be some safeguards, such as pensions that do not pay NIC on income at the moment and how the tax credit would be calculated towards your basic state pension.  There is also the case of the self-employed NIC rate which is quite low at the moment.
But as far as general policy goes, I think it would be a good idea to simplify the payroll taxes system and at the same time give more transparency into how much you actually pay in overall payroll taxes.
Remember, after you pay this tax, the government then takes another 20% off your net earnings for most things you buy as VAT.  It kinda makes you think a little!!