Two fifths of the working people would see their tax liability change under proposals to bring national insurance contributions (NICs) and income tax into closer alignment, according to the Office of Tax Simplification (OTS).

The proposed changes would see employees taxed in the same way for both national insurance and income tax on the same earnings, while employers would pay a payroll based charge.

According to the report:

• 40% of the working population would be affected by the change
• Part-time employees, women and those under 35 would benefit
• Those earning more than £20,000 income would be worst off from the changes, particularly those with multiple jobs, higher incomes or in industries with bonuses.

Key proposals include:

• Moving employees NICs to an annual, cumulative and aggregated (ACA) system on employment income
• Charging employers NICs as a levy on total payroll costs
• A more transparent NICs system
• Aligning IT legislation for IT and NICs so that charges are the same
• Bring taxable benefits in kind into class 1 NICs and abolish class 1A NICs.

Colin Ben-Nathan, chairman of employment taxes sub-committee at CIOT, said:

“Changing to an ACA system for employee NIC will produce losers as well as winners and so careful thought will need to be given to the transition, particularly to the effect on the lower paid.

One approach may be for the government to raise the primary threshold for employee NIC closer to the level of the income tax personal allowance so that the lower paid are properly protected.”