Integration of Income Taxes and Benefits Systems Into a Single System in the UK.

Complete 7 pages APA formatted article: Integration of Income Taxes and Benefits Systems Into a Single System in the UK. The review particularly evaluated the potentiality of integrating personal taxes and benefits and proposed some models to promote the merger of these two systems. This paper will specifically evaluate the recommendation to integrate both the benefit and income tax systems into one system.

Currently, the United Kingdom imposes two types of taxes on income such as income tax and National Insurance (NI) contributions (HM Treasury). The tax rates depend greatly on the level of earnings and whether an individual is employed or self-employed. Although these two types of taxes are different in purpose, they are almost similar. Naturally, UK citizens are required to pay income tax on wages. Without paying any income tax, an individual can earn some amount of money each year (HM Revenue & Customs). This tax-free amount is termed as Personal Allowance. Naturally, individuals who earn more money need to pay a higher amount of income tax. In contrast to income tax, national insurance is paid with intent to gain state pension and some other benefits (HM Revenue & Customs). If an individual is employed and earns above a certain level, he/she is required to pay Class 1 National Insurance. In contrast, if an individual is self-employed, he/she needs to pay Class 2 National Insurance contributions weekly and also a Class 4 National Insurance contribution as a percentage of his/her taxable profits (ibid). Under the current benefits and income tax system, one tax has to be assessed on earnings realised in each individual pay period whereas the other tax needs to be assessed on income over the whole year (Tax by design).

The Mirrlees review particularly suggests that the proposed integration must be performed in a careful and thoughtful way. It is possible to make the integration process easier by publicising the intended changes prior to implementation.