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In the UK, there's a type of income tax called "Employer’s National Insurance". This is calculated just like the other forms of income tax and is paid by the employer directly, but the employee never sees this on their payslip and it is not part of their negotiated salary.

https://www.gov.uk/national-insurance-rates-letters/contribution-rates

(For example, say you're an employer and you've budgeted £1000/month for a potential employee's salary. You'd have to offer that person £878.73/month salary to bring the amount you'd actually be paying to the £1000 you've budgeted for.)

What is the rationale for having this separate income tax on top of the normal salary level?

Note that I'm particularly interested in the rationale behind the portion of the tax that doesn't appear on the payslip, rather than the virtues of national insurance itself.

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  • Stealth tax. Well, not that stealthy really.
    – Phil Lello
    Nov 26, 2016 at 19:53
  • 1
    It's a means of taxation the wealthy do not have to pay (not applied to dividends and capital gains) and that most employees do not think about. It shifts the tax burden from the wealthy to the poor without them noticing, just like employees NI which means UK effective income taxes are 32% and 42% not 20% and 40% regularly touted. That's the point.
    – Jontia
    Mar 13, 2020 at 8:35
  • As a side note: a similar taxation scheme is used in Sweden, called "arbetsgivaravgifter" (employer charges) at about 31.42%.
    – ghellquist
    Jan 26, 2022 at 16:26
  • I think the idea behind Employer’s National Insurance is if an employer can afford to employ someone they should also make a contribution to the general welfare of society. Feb 13, 2022 at 23:29
  • Employer contributions are required in the US and many other countries.
    – Stuart F
    Feb 14, 2022 at 8:44

3 Answers 3

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+100

There is a historical reason for this.

If you look to the state before 1911, health and social care was paid for by insurance. An employee could pay into an insurance scheme, and their employer would also make a contribution. There were tax incentives to promote this. The idea was that the company would benefit from a healthy worker, so it would be in the company's interest to make these payments.

In fact many workers didn't take out insurance, and had no access to medical care and had to rely on their family to care for them after they retired. Many ended up in the workhouse.

The "national insurance" system nationalised these pre-existing practices and made them mandatory. What was a "best practice" became the law. The structure whereby your payslip shows a contribution to NI and your employer also makes a contribution is a vestige of private insurance schemes at the start of the twentieth century.

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  • The UK has now returned to a system where employers and employees are both encouraged to contribute to pensions, separate from NI. gov.uk/workplace-pensions/…
    – Stuart F
    Feb 16, 2022 at 17:02
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Welfare in the UK used to be almost entirely contribution based, National Insurance was the system through which people contributed. It is mostly defunct now as welfare is now almost entirely means tested instead. So that is the rationale behind National Insurance.

As for the employers National Insurance contribution, it is just political obfuscation of the true level of taxation that is applied to an individual's income. Seeing as National Insurance in it's entirety is pretty much an obsolete concept the entire scheme could be considered to be obfuscation as well.

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    I've down voted this because National Insurance covers and health, pensions as well as welfare payments, the former two are not means tested and there are other non-means tested benefits such as Child Benefit. I believe that NI was originally designed to be paid into a designated fund that would cover health, pensions and welfare and would be separate from other tax revenues and spending requirements. However over time the cost of the NHS, pensions and welfare has increased beyond the level of NI revenues and everything just goes into the one pot. Feb 13, 2022 at 23:39
  • I downvoted because even if it functions to a degree as obfuscation, that is unlikely to have been the original reason, and still less likely to be the rationale that first accompanied it.
    – Stuart F
    Feb 16, 2022 at 17:01
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In the uk national insurance is a contribution (tax) that you make from your income to pay for your entitlement to your state pension (old age pension) plus other things like unemployment benefits.

http://www.which.co.uk/money/tax/guides/national-insurance-explained/national-insurance-contributions/

National insurance is deducted from your salary, and your employer also has to pay a proportional amount.

https://www.gov.uk/national-insurance-rates-letters/contribution-rates

This is in addition to income tax that you pay which is what funds other things that central government does. National health service, military, major infrastructure, education, and ...........

These two are both deducted from your salary.

In the uk there are also other taxes such as value added tax (a sales tax) which is currently charged at a rate of 20% (Yes US friends 20%) on most items

And at a local level there is a Council Tax which is set locally (within limits) that pays for local services such a street cleaning, police, fire, libraries, environmental health, planning and ......

Central government also dictates how some money that local government raises is spent.

There are other taxes as well (property, estate, inheritance, and........)

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