The 91-page review said a full integration of the income tax and NI system in one unified tax would “reap significant simplification rewards in the long term” and offer greater transparency for taxpayers.
Described as a “long-term aim” of the OTS, the paper recognised that a merger would “undoubtedly be complex, raising significant issues going to the heart of the current system with many political implications”.
However it also claimed that a unified tax would “reap significant simplification rewards”.
The paper proposed the disposal of the P11D form which is used by employers to report non-payroll benefits such as fuel allowance and medical insurance on a yearly basis.
The benefits generate more than £3.3bn in tax and NI contributions every year. However the paper’s authors recognise the huge administrative effort needed to process the 4.4m forms
They proposed to eliminate up to 99 per cent of the returns by permitting employers to payroll some or all of their benefits and expenses on a monthly basis, “saving vast amounts of time and effort for employers, agents and HM Revenue & Customs”.
Danny Cox, head of financial planning for Bristol-based Hargreaves Lansdown, said: “The UK tax system is rife with complexity and employers and taxpayers alike would welcome simplification. But full integration of income tax and NI is a mammoth task and would require rewiring the pension system too.
“We may see some government response on this project in the forthcoming Budget, which will probably adopt some of the quicker wins, although we are some way off unification of the two taxes.”