Devolved powers response from ICAS

scottish parliament

6 March 2015

ICAS has given evidence to a Scottish Parliament committee on the UK Government's proposals for further devolved powers in Scotland.

The draft clauses in the government paper 'Scotland in the UK: an enduring settlement' aim to take forward the Heads of Agreement set out by the Smith Commission. The all-party commission was set up to establish increased powers for the Scottish Parliament following last year's Independence Referendum.

The ICAS evidence to the Scottish Parliament's Devolution (Further Powers) Committee states that while the government's proposals will, in general terms, achieve the objective of devolving certain powers and taxes, questions and issues arise, including future adjustment of the block grant.

ICAS has called for a phased implementation of additional responsibility for income tax, to ensure a sufficient settling in period for the Scottish Rate of Income Tax changes already scheduled for 2016.

The ICAS response includes support for the full devolution of the aggregates levy and air passenger duty, but highlights a lack of clarity on the establishment of 'Scottish VAT'.

The paper calls for a public awareness campaign to counter any confusion over the changes to taxation and processes. 

  1. ICAS welcomes the opportunity to present its comments on tax aspects in the paper 'Scotland in the United Kingdom: an enduring settlement' issued by HM Government in January 2015.  
  2. The draft clauses in the paper 'Scotland in the UK: an enduring settlement' will, in general terms, achieve their objectives of devolving certain powers and taxes. However, questions and issues arise about related non-statutory material and processes, such as how the block grant adjustments may be calculated, and the establishment of the fiscal framework. It is not yet clear how 'no detriment' will be interpreted or calculated.  These points will have an impact on whether the devolved taxes achieve their aims of greater accountability between the Scottish parliamentarians and their electorate. 
  3. Income Tax: The income tax proposals combine a pragmatic way of devolving further elements of income tax whilst retaining the UK infrastructure of tax collection with HMRC and employers, thereby avoiding the costs and efforts of whole-scale change.  At the same time the income tax proposals build upon existing devolved authority because a Scottish rate of income tax (SRIT) is already in place for April 2016, and extend this by offering the Scottish Parliament further decision making and finance raising responsibilities. ICAS recommends that the implementation should be phased in over a number of years. The SRIT planned for 2016 should be permitted to settle in, say over two years, before there is further devolution of income tax. 
  4. Capital Gains Tax (CGT): Clause 12 in the 'Draft Scotland Clauses 2015' is a necessary requirement as a consequence of the income tax measures. It is designed to retain consistent application of the CGT rates across the UK. 
  5. Aggregates Levy and Air Passenger Duty: ICAS supports the full devolution of these taxes, as recommended by both the Calman Commission and the Smith Commission. These are standalone taxes that do not have significant interaction with other taxes so they lend themselves to being devolved.  
  6. Value Added Tax: Clause 13 in the 'Draft Scotland Clauses 2015' regarding VAT delivers the mechanics of the assignment of VAT, but with the large caveat that it applies 'where there is an agreement between the Treasury and Scottish Ministers…'. The rules for agreeing this have not been provided and it may not be easy to identify 'Scottish VAT'.   
  7. The overall result of the Smith Commission's recommendations on devolving taxes further will be:
  • Three, or more, implementation dates for new tax powers in Scotland:  
    • 1 April 2015 for Land and Buildings Transaction Tax and for Scottish Landfill Tax
    • 6 April 2016 for Scottish Rate of Income Tax 
    • A date(s) in the future for the Smith recommendations to extend the income tax rates and bands; to devolve Air Passenger Duty and Aggregates Levy; and the assignment of VAT, and 
  • Three different levels and/or types of devolution:
    •  Full devolution - Land and Buildings Transaction Tax , Scottish Landfill Tax, Aggregates Levy and Air Passenger Duty
    • Partial devolution - Income Tax rates and bands 
    • Assignment – a proportion of VAT receipts 
  1. In public usage the phrases 'Scottish taxes' or 'devolved taxes' tend to encompass different types of devolution and varying amounts of responsibilities, and they lack precision. The nature of the powers with, say, income tax are fundamentally different from those devolved with, for example, Land and Buildings Transaction Tax.  There is great scope for confusion in public understanding.


  • Political landscape

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