National Insurance: How are your contributions used?
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A range of tax consultations and calls for evidence are to be published by the Government next week, on Tuesday, March 23. Previously, these have been published as part of the Budget pack, but this year, the Government is having a specific “tax administration day”.
There are plenty of things which financial experts and members of the public alike will be looking out for.
This includes a possible consultation on Capital Gains Tax, and a potential consultation exploring approaches to aligning Income Tax and National Insurance for employees and self-employed.
Steven Cameron, Pensions Director at Aegon, is among those to have shared his predictions on what may come up, and how it could impact on savings, investments and pensions.
“Despite earlier speculation, the Chancellor didn’t announce any radical changes to taxes in the March 3 Budget,” he commented.
“Pensions tax relief was left unchanged other than freezing the lifetime allowance, the limit on the value of benefits that can be built up in a pension without a tax penalty arising.
“And there were also no changes to wealth taxes such as Capital Gains Tax or Inheritance Tax.
“But with his hands tied by a Manifesto Commitment not to increase Income Tax, National Insurance or VAT, the Chancellor may have future plans to make changes in these areas, while also seeking to boost the green economy and deliver intergenerational fairness.
“While we won’t see any immediate changes on March 23, tax administration day, we may gain new insights into what might be under consideration for the future.
“In many areas, those potentially affected could benefit from seeking financial advice.”
Mr Cameron discussed various taxes which could be looked at next week.
And, he suggested this could include the aligning of Income Tax and National Insurance for employees and self-employed workers.
“The Chancellor has repeatedly reminded us that during the pandemic he has provided support to both employees (through the Coronavirus Job Retention Scheme [CJRS]) and to the self-employed (via the Self-Employment Income Support Scheme [SEISS]).
“He has hinted that equal support may justify equal Income Tax and NI.
“Of course, it’s an over-simplification to say either pandemic support or state benefits are equal – for example the self-employed are not entitled to statutory sick pay or pay during parental leave.
“But now might be an opportune time to start exploring the many complexities of aligning Income Tax and NI for employees and the self-employed.”
During his Spring 2021 Budget statement, the Chancellor announced the Personal Allowance rise would go ahead as planned, as would an increase to the Higher Rate threshold.
However, they would then be frozen, as would a number of other tax thresholds, for five years.
This measure, known as fiscal drag, to cover the costs of the coronavirus pandemic will mean over time, many taxpayers will end up paying more tax.
The standard Personal Allowance, currently £12,500, will rise by 0.5 percent next month to £12,570.
Mr Sunak has said it will then remain at this threshold level until April 2026.
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