The role of National Insurance in the income tax system

In recent years ICAEW Tax Faculty has been setting out some of the hard choices

The Tax Faculty published a paper last year Income tax and NIC – four options: a hard choice in which we considered the future of national insurance (NIC) as part of the (income) tax system.

In our paper we set out four possible future NIC options, and the future relationship of NIC with income tax: merge income tax and NIC, manage the relationship, de-merge the two or, finally, make do.

The Office of Tax Simplification (OTS) has more recently produced, in March 2016, a report The closer alignment of income tax and national insurance which contains detailed proposals for the ‘alignment’ of income tax and NIC. These proposals are very similar to the “manage” option in our own paper.

We have now, October 2016, produced a further paper Hard choices for national insurance – where are we now?  which brings together the discussion in our initial paper with that of the OTS.

In this most recent paper we consider eight major proposals from the OTS paper, identifying benefits and issues with the suggested approaches and summarising what taxpayers and employers can expect from each of them.

Our latest document has also been written to take into account the results from workshops we held nationally to ascertain the thoughts of Chartered Accountants and the public on the four options in our original paper. The two groups had very different views with a majority of accountants favouring manage whereas a huge majority of the public chose “de-merge”.

In addition to the papers on this subject, for which we have provided links above, we also produced a video explaining the choices which you can view via this link.  

 If you have any thoughts on the topic then please do write to us at

  • The founding principles of the NHS are:

       Services were provided free at the point of use;

       Services were financed from central taxation;

       Everyone was eligible for care (even people temporarily resident or visiting the country).

    It has never been linked to payment of NIC

  • Everybody has forgotten their history. When the NHS was first introduced I believe that it was only available to working people who paid NIC. Now that it is available to all everybody should pay NIC on their income and gains and that includes rents, dividends, capital gains, etc. This dictates an integration of income tax and NIC and would reduce the  regressive charge on working people and their employers.