Both Income Tax and National Insurance could be involved in one of the biggest restructures of the tax system in decades.

The Chancellor, George Osborne, has ordered a study into the reforms that could potentially lead to the creation of a single “earnings tax”. Mr Osborne considered merging the two taxes in the final Budget of the last Parliament but decided not to following concerns about problems linking the two IT systems.

The National Insurance system dates back over 104 years, it was introduced to help working people insure against illness and unemployment. During the Second World War, the system expanded helping fund the health service and wider social security programmes.

Now, anyone who is employed and earns between £112 and £815 a week pays 12% of their income in National Insurance. However, anyone who earns more than this pays a further 2% in National Insurance ensuring that the system provides billions every year for the Treasury. Self-employed workers including contractors and freelancers pay National Insurance either at a flat rate or as a percentage of the individual’s annual taxable profit.

Tax experts have previously commented that the idea of a single tax fee would be attractive, removing two separate payments with different rules. The Office of Tax Simplification (OTS) will publish its report before the Budget next year.

David Gauke commented: “I would like the OTS to look at what impacts, costs and benefits of closer alignment would be and to set out what the necessary steps would be to achieve closer alignment.”

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