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CIOT: Scottish APD Devolution Could Cause Double Taxation

by Robert Lee,, London

16 June 2016

The Chartered Institute of Taxation (CIOT) has urged the UK and Scottish Governments to work together on changes to flight taxes ahead of the devolution to Holyrood of power over Air Passenger Duty (APD).

From April 2018, the Scottish Parliament will be able to implement a Scottish flight tax system. The Scottish Government has announced that it will reduce the burden of APD by 50 percent by the end of the current parliament, which will run until 2021. It intends to abolish the duty altogether when resources allow.

CIOT said that it is concerned that the UK and Scottish governments may adopt different approaches to connected flights, and that passengers may be hit by double taxation. It warned that a change to the rules as a result of devolution could potentially lead to disagreements between the two governments, and to taxpayers paying two amounts of tax on part of their journey.

CIOT explained that the current connected flight rules drive some passenger behavior. For example, travellers may choose to use hubs outside the UK and ensure that their ongoing flight does not count as a connected flight for their journey. This means that they only pay APD from the UK to the hub. However, if they arrange their travel in a way that results in the flights being connected, APD is charged on the entire journey, leading to a higher tax charge.

CIOT said that, under a change in the rules in Scotland, an example flight from Edinburgh to Sydney, via London Heathrow, could face double taxation. Under Scottish rules, the flights could be deemed connected, enabling Scotland to charge APD on the whole journey from Edinburgh to Sydney. Under UK rules, the flight from Edinburgh to Heathrow might not count as connected, allowing the UK to charge UK APD on the flight from Heathrow to Sydney. This scenario would mean the passenger faces a higher APD liability.

John Cullinane, CIOT's Tax Policy Director, commented: "It would help people operating the tax if the Scottish version operates in a similar manner to the UK's APD. UK APD is not without its complexity but it is fairly straightforward for the industry to operate and arguably a simple tax by comparison with other taxes in general."

"We urge joint working by the UK and Scottish governments on connected flights to avoid travellers facing double taxation and the risk that this extra cost will eventually be added on to the cost of flights by the industry."

TAGS: tax | air passenger duty (APD) | United Kingdom | agreements | tax rates | tax reform | trade association | trade | Scotland

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