National Insurance and income tax are both deducted from your wages, both calculated as a percentage of your earnings, and both go to the Treasury. So why do we have two separate systems? And would merging them actually be a good idea? This guide unpacks the debate.
How NI and income tax overlap
On a practical level, NI and income tax are very similar. Both are calculated on employment income, both use bands and thresholds, and both are collected through PAYE. For a basic-rate employee in 2026/27, the combined deduction is approximately 28% (20% income tax + 8% employee NI) on earnings between £12,570 and £50,270. Above £50,270, it's 42% (40% + 2%).
Key differences that still exist
- NI is individual-only: there is no joint assessment for couples, unlike income tax which allows Marriage Allowance transfers
- NI applies only to employment/self-employment income: investment income, rental income, and pensions are exempt from NI
- Different thresholds: the Primary Threshold (£12,570) aligns with the PA, but the Upper Earnings Limit (£50,270) and higher-rate threshold are coincidentally aligned, not structurally linked
- Employer NI exists separately: employers pay 15% on top of your salary (invisible to you but a real cost of employing you)
- NI builds State Pension entitlement: 35 qualifying years of NI contributions entitle you to the full State Pension
- No NI on pension income: once retired, you pay income tax but no NI on your pension
The case for merging them
- Transparency: most people don't understand the true rate they pay. A single "income tax" of 28% basic rate would be clearer than pretending NI is something different.
- Simplicity: two systems means two sets of thresholds, two sets of legislation, and double the administrative complexity
- Honesty: politicians use NI rises to avoid saying they've raised "income tax" — a merged system removes this sleight of hand
- Fairness debate: why should employment income be taxed more heavily (NI + IT) than investment income (IT only)?
The case against merging
- Pensioners would pay more: merging NI into income tax would mean pensioners pay the combined rate on their pensions (currently NI-exempt). This is politically toxic.
- Contributory principle: NI is (theoretically) linked to State Pension entitlement. Merging breaks this link.
- Employer NI visibility: a merged system would need to decide what happens to the 15% employer contribution. Making it visible on payslips would shock employees.
- Investment income: extending the merged tax to dividends and rental income would be a huge tax rise for investors and landlords
- Transition complexity: every payroll system in the country would need reprogramming
What would merger look like in practice?
The most commonly discussed model:
- Basic rate: 28% (current 20% IT + 8% NI)
- Higher rate: 42% (current 40% IT + 2% NI)
- Additional rate: 47% (current 45% IT + 2% NI)
- Pensioners: exempt from the NI component (protecting the status quo)
- Employer NI: remains separate as a "jobs tax" to avoid the merged rate appearing astronomical
Political history
Almost every tax reform commission since 2000 has recommended merging NI and income tax. The Mirrlees Review (2011), the Office of Tax Simplification, and multiple think tanks have called for it. No government has ever attempted it — the transition costs, the political backlash from pensioners, and the sheer complexity make it a "too hard" box that gets kicked to the next parliament.
See your combined rate
The income tax calculator shows both your income tax and NI deductions separately and combined. Try it to see what your true combined marginal rate is — you may be surprised. For a deeper dive into NI specifically, read our National Insurance explained guide.