Partner Article

A tax by any name…

Does it matter what something is called? Shakespeare didn’t think so, but even he’s been outed as a tax evader - so maybe he’s not an impartial witness!

My tribute to the Bard was prompted by the proposal, put forward by a backbench MP, that National Insurance should be renamed ‘the earnings tax’. While the proposal is not likely to become law immediately, it has been reported that the Chancellor is sympathetic to the idea – so it’s possible that it might put in an appearance in the Budget.

Names do matter. Older readers may still think of NI as ‘paying the stamp’ – harking back to days when it was a modest levy toward the cost of pensions involving fixing a stamp on a record card. Those days have long gone. NICs are, for all practical purposes, a tax that is a fundamental part of government receipts. But how much is this reflected in public perception? Not much, in my estimation.

If you asked someone in the street what the basic rate of tax is, you would probably get the answer 20%. In reality the combined rate of tax and NI is 32%. Indeed low earners pay more in national insurance than they do in tax. The break-even point is £11,960.50 per year, and it is only above this that individuals pay more income tax than NI.

So if there is to be an informed debate on tax, then it does matter what it is called. But here the politics get in the way…

Opposition politicians like to call NI the ‘jobs tax’ because they can then attack increases in NI as being an attack on jobs. But when they get into Government they look at things rather differently – ’twas ever thus.

The contrast between income tax and NI has become a distinction without a difference. In reality they are the same thing, but because of their very different histories, there are a host of problems in the way they operate. If you really want to be bored to tears, then get somebody to talk to you about the implications of NIC operating on a non-cumulative basis.

We don’t need a name change – we need full integration.

This was posted in Bdaily's Members' News section by Baker Tilly .