Budget 2011: Tax and national insurance may be merged

Chancellor George Osborne said the Government will consider merging tax and national insurance in a radical move that could simplify the taxation system.

The plans will be debated by the Government, consumers and industry as part of a wide-ranging consultation which will take a number of years (see the Tax Code checker).

Critics have argued the two-tier system is confusing as many mistakenly fail to take NI into account when considering what deductions from their salary will be made.

Osborne said: "Purpose is not to increase taxes but to simplify them. It will take a number of years to complete."

The amount of NI you pay is mainly used to calculate benefit payments but ultimately goes into the same government pot as tax.

Even then, there are different types of NI for the employed and self-employed to further muddle matters.

The Government will begin its consultation this year, looking into the options, stages and timing of reforms.

Further reading/Key links

Tax help: 2010/11 Tax Breakdown, Taxing Times