The Office of Tax Simplification (OTS) has published the findings of a review into bringing National Insurance Contributions (NICs) and income tax closer together, to create a simpler payroll tax system.

Contributors to this review raised a number of concerns about the current system, particularly regarding the administrative complexity of applying different sets of rules.

The OTS report highlights the differences between the two tax systems and at how they could be addressed by aligning the operation of NICs with that of income tax.

This alignment process is set out in the report as having seven key steps:

1. Move to an annual, cumulative and aggregated assessment period for employee NICs as happens with PAYE and income tax
2. Base employers’ NICs on whole payroll costs
3. Align the NICs position for the UK’s 4.7m self-employed with that of employees
4. Review the contributory principle, as well as increasing understanding of what it does – and doesn’t – do
5. Align the definitions of earnings and the reliefs available for both income tax and NICs
6. Bring taxable benefits in kind fully into NICs
7. Harmonise the rules governing the management of income tax and NICs, and their administration, including setting up a method so that any changes can operate automatically for both taxes.

If Ministers accept in principle the case the OTS has made, they will seek to consult on the impact of these recommended changes.