A proposed shake-up of the UK’s national insurance system could see millions of workers paying hundreds of pounds more a year, including those on low paid employment.
The Office of Tax Simplification (OTS), an independent adviser to the Treasury, is proposing a change that would see HM Revenue & Customs calculating national insurance annually rather than monthly, to align them more closely with income tax and make the rules simpler.
The proposal mean about 5.5 million people with earnings of more than £20,000 would pay an average of £242 more per year if the Government approved the changes. Employees who receive an annual bonus or are awarded a pay rise part way through the year would also end up facing a higher bill.
Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants, said: “Middle-class workers are going to be affected by these changes. The Government needs to be looking at the impact on them and must make sure they don’t lose out."
However, the new rules, which could be introduced in six years, will also see students, recent graduates and temporary workers paying less tax a year.
The OTS estimated the proposals would results in about 5.5 million workers paying higher national insurance contributions while 7.6 million paying would pay less.
OTS chair Angela Knight said the current system was out of date and needed to be reformed. However, she acknowleged that “some will gain and others will lose out” following the changes.
She said: “As patterns of employment continually change, many more people are combining employment and self-employment: these different ways of working are with us, and so the current national insurance system is not just complicated but is simply out of date. It’s time to address this problem.”
“Our independent review has demonstrated though, that some will gain and others will lose from any change.”
Robin Williamson, LITRG’s technical director, said: “We urge the government to make compensation available to any losers on the lowest incomes to help them in the transition. Much can be done by adjusting rates and thresholds, for instance by raising the primary threshold.”
Hannah Maundrell, editor in chief of Money.co.uk, said: “Taking such a sizeable chunk of earnings for the sake of simplifying calculations is a dangerous move at a time when prices are starting to rise and household incomes are beginning to be squeezed.
“The system is overcomplicated and does need sorting but it’s important people don’t lose out.”
