Thursday, 24 March 2011

It's about time tax and NI were merged.

An interesting suggestion in yesterdays Budget was the decision to look into whether Income tax and National Insurance should be merged.

This is regarded as something of a political minefield and it is clear that National Insurance means something different to the older generation than what it means to me and my generation.

For us National Insurance is clearly just income tax by another name.  I understand historically the money raised was put aside for specific purposes and although a theoretical reserve remains the truth is the money is in the general pot.

Another concern particularly for those approaching retirement is that this will in effect be a tax on the retired as they do not currently pay NI.  This is an understandable concern but can be quickly and easily dealt with by raising the personal allowance further for people past the retirement age.

The current system of having effectively 2 income taxes is unclear and unnecessarily bureaucratic.  I often meet people who have put 20% of their profits to one side to cover their tax bill.  Most people don't realise that the also need to put aside another 8% to cover their National Insurance.

The system has been used to con the public in recent years.  Gordon Brown often went into elections promising not to raise income tax.  Once the election was won he duly put up National Insurance.  This is the sort of underhand political spin which has lead to politics in general being brought into disrepute.

A simpler tax system which is easier to understand is something we should all want to see and I for one hope the Government push forward with this as soon as possible.

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