26 February 2014
Contractor tax can be a complicated area for the self employed and many struggle to determine what they should and should not be paying and how much.
In a bid to simplify matters and add clarity, Conservative MP Ben Gummer is trying to change the name of National Insurance (NI) to 'Earnings Tax'.
He claims that the term NI is misleading, when the levy is, in effect, another form of income tax.
Mr Gummer, MP for Ipswich, intends to introduce the name change through a Ten-Minute Rule Bill. This parliamentary vehicle allows backbenchers to suggest legislation. However, in practice, due to time constraints, it is often used for MPs to test parliamentary opinion.
If Mr Gummer's suggestion receives support, it is believed it will constitute the first step to merging NI and income tax.
Chancellor George Osborne is already believed to be in favour of the bill, although he is yet to make an official public comment on the matter.
"I am very pleased the government is interested in the idea," Mr Gummer said. "They have been very receptive to trying to make the tax system more transparent. This would be a really good step forward in making what the government takes from taxpayers clearer and simpler."
He added that for a long time he has been of the belief that creating simplicity in the UK tax system is merely about being more transparent.
"Taxpayers are consumers – both parties have recognised that for some time, so if we give them a better handle on what they are paying and where it goes, you only enhance the conversation that you have with politicians," he said.
Simplifying the tax system is a key goal for officials at the moment and the Office of Tax Simplification is trying to make the submission of benefits easier for contractors and limited companies.
The 'Review of Employee Benefits and Expenses' includes proposals to allow businesses to process benefits for staff (including directors) via payroll when it is deemed appropriate.
It is believed this will lessen the amount of paperwork that needs to be completed by contractors and employers who have to submit a P11D to HM Revenue and Customs (HMRC).
Should the recommendations be accepted, companies will add the value of their taxable benefits-in-kind to payroll, whether or not expenses are covered by an exemption or dispensation.
However, the Office of Tax Simplification doesn't want to impose any blanket rules, claiming employers should be able to choose the benefits they put through payroll and those they continue to submit via a P11D.
This is because some benefits, such as loans, are a challenge to process through payroll.
Nevertheless, those benefits selected for payrolling must be submitted the same way for all employees. This will help to ensure there is consistency and fairness.
In its report, the Office of Tax Simplification explained that HMRC processes will also be streamlined to remove benefits more quickly from the employees tax code once the body has been notified that the benefit has been payrolled or is no longer being received.
"The general stance should be one of encouragement and facilitation to employers to move to payrolling, but without any suggestion of compulsion," the document stated.
I am a chartered tax advisor with a specialism in the freelance contractor sector advising contractors on how to structure their affairs and recruitment businesses and end hirers on the effective…
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