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Government responds to OTS reviews of small companies and NICs

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The government will not be taking forward the OTS’s specific recommendations for the reform of employee and employer NICs at this stage, but will consider them as it develops measures aimed at the growing numbers of the self-employed, single-person companies and different forms of employee remuneration.

The chancellor of the exchequer has written to the OTS, responding to its recent group of reports (see The chancellor acknowledged that there is ‘significant interest’ in aligning the calculation of income tax and NICs by moving the calculation of NICs to an annual, cumulative and aggregated basis, but was more concerned about the ‘major upheaval’ this would involve. The letter sets out his conclusion: ‘On the basis of the scale of change required, I do not consider now to be the right time to make this major reform but I am grateful to you for bringing these issues to light.’

The government will ‘keep under review’ the OTS’s recommendations for moving employer NICs to a payroll levy, although the chancellor referred to ‘wider issues with the different tax treatment of different forms of labour, highlighted by the growth in self-employment and the number of single person incorporations’, for which measures were announced in the Autumn Statement. These include changes to salary sacrifice schemes, and consultations planned for Budget 2017 on how various benefits-in-kind are valued and on the use of income tax relief for employees’ business expenses.

Colin Ben-Nathan, chair of the CIOT’s employment taxes sub-committee, commenting on the chancellor’s confirmation that the government is to go ahead with its plans to remove the income tax and employer NICs advantages of salary sacrifice schemes, expressed concerns over how the measures will work in practice. He did, however, welcome the transitional rules, under which arrangements in place before April 2017 will be protected until April 2018, while longer term arrangements for cars, accommodation and school fees will be protected until April 2021. ‘Salary sacrifice and flexible benefit packages for many workers are negotiated on an annual basis,’ Ben-Nathan said, ‘and a change of tax treatment within that benefit period would have created unfairness and confusion.’

The financial secretary to the Treasury has also written to the OTS to welcome its follow-up reports on the review of small company taxation. The government will consider the new ‘sole enterprise with protected assets’ trading vehicle, including the issues needing further exploration, as part of future small business measures. The government also welcomes the OTS’s conclusion that ‘lookthrough’ taxation, whilst not currently offering simplification, might form part of a long term, strategic review of the whole area of labour taxation.

The OTS is due to publish its interim report on simplification of the corporation tax computation in the spring.

Issue: 1334
Categories: News