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New Report On Administration Of Scotland's New Income Tax

by Jason Gorringe, Tax-News.com, London

04 December 2017


Maintaining accurate address records of the 2.6 million Scottish taxpayers remains the biggest risk facing HM Revenue and Customs in seeking to ensure that Scottish income tax is assessed and collected properly, according to a new report from the National Audit Office.

From April 1, 2017, Scotland gained the power to set its own income tax rates and thresholds, within reasonable bounds. Before then, Scottish workers were subject to the same income tax treatment as the rest of the UK. Scotland chose to alter only the tax thresholds and not the rates in last year's fiscal package. As a result, the higher rate (45 percent, top tax rate) threshold in Scotland has been set at GBP43,430 (USD53,935) for 2017-18, compared with GBP45,000 (USD55,894) in the rest of the UK. The rates remain unchanged. The Scottish Government is currently working with other political parties on more fundamental changes to the country's personal income tax system.

Scotland's devolved income tax will continue to be administered by HM Revenue and Customs but Scotland will pay for the administrative costs incurred. According to NAO's report, HMRC expects to collect GBP4.6bn in Scottish income tax. Last year, HMRC incurred administrative costs of GBP6.3m.

According to the NAO's report, about GBP26.8m of the extra GBP127m in revenue expected by the Scottish Government from its personal income tax threshold changes will be lost in administrative costs in 2019-20.

The report said HMRC has now rectified issues that led to it not identifying 420,000 people as potential Scottish taxpayers in 2015. It said: "The biggest challenge facing HMRC is maintaining accurate address records of Scottish taxpayers. Neither taxpayers nor employers are legally required to tell HMRC of changes of address. Around 80,000 people in the UK move into or out of Scotland each year. HMRC has carried out an online marketing campaign in Spring 2017 promoting the message that people should inform it if they move house. It also used social media to promote this message. However, it does not know how many people it has reached or what impact it has had on public readiness to update HMRC about changes of address."

Amyas Morse, head of the National Audit Office, said: "HMRC has made good progress in assuring itself of the accuracy of the Scottish taxpayer population, but could do more with its own data to improve the accuracy of income tax receipt estimates. People are at risk of paying the incorrect amount of tax if they do not provide HMRC with accurate address data, and HMRC do not know whether its interventions to raise awareness of this has been successful."

The report's findings are significant given concerns from Scottish lawmakers and policy think tanks that tinkering and not substantially changing Scotland's income tax regime would lead to needlessly higher compliance costs for taxpayers and HM Revenue and Customs and bring about little change to the actual treatment of taxpayers, following a concerted push by Scotland for greater tax-setting powers from the UK.

TAGS: compliance | tax | law | United Kingdom | tax thresholds | tax rates | Scotland

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