Ant Donaldson, senior specialist, employee benefits at E.On UK:
Anything that simplifies tax regulations has to be viewed in a positive light, provided people do not lose out.
Income tax and national insurance (NI) have different thresholds and limits and interact with reward in varying ways, making it hard to explain them to the average finance professional, let alone most employees.
So what is not to like in the proposal to integrate the two taxes? One concern would be the impact on salary sacrifice. Some benefits generate income tax and NI savings for staff plus NI savings for employers. Many salary sacrifice benefits support policy objectives, such as pension saving, helping working parents, promoting green travel, or the prevention and detection of illness. Presumably, those savings could be protected for employees and employers, if HM Treasury was so minded. Similarly, the tax breaks on payroll giving and employee share schemes could be maintained with careful drafting of the legislation.
Harmonising tax thresholds and rates may also create winners and losers, so the mandarins would need to minimise these effects. Problems would also arise for benefits, which simply have an employee NI saving, such as critical illness insurance or private medical cover. Those savings would be harder to preserve. Other issues relate to the interaction between NI and welfare benefits, including state pensions, which is another complex area.
The key risk would be if HM Revenue and Customs wanted to use tax harmonisation as a means of removing salary sacrifice. Large numbers of staff and employers rely on the savings, so [reward professionals] may be wise to respond to the government’s consultation.
Ant Donaldson is senior specialist, employee benefits at E.On UK