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.


(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.

  • Stealth tax. Well, not that stealthy really. – Phil Lello Nov 26 '16 at 19:53
  • 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 at 8:35

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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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.


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


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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