ICAS and devolved tax powers
By Donald Drysdale for ICAS
11 January 2018
Considering the way Westminster has devolved taxes to date, Donald Drysdale reflects on the unique experience of ICAS and how its members can influence future devolution.
Scotland’s experience
Within the UK, Scotland has been at the forefront of the devolution of tax powers by the Westminster Government.
Scotland Act 2012 gave the Scottish Parliament power to levy two new, fully-devolved taxes. As a result, land and buildings transaction tax (LBTT) and Scottish landfill tax (SLfT) were introduced in April 2015, replacing stamp duty land tax (SDLT) and landfill tax (LfT) north of the border.
Following a process of legislative evolution through the Scottish variable rate (SVR) and the Scottish rate of income tax (SRIT), the new Scottish income tax (SIT) was implemented in April 2017. SIT is a partly-devolved tax levied on the non-savings non-dividend income of Scottish taxpayers. The rates and thresholds are set by the Scottish Parliament, while all other aspects of the UK income tax regime remain reserved to Westminster.
From April 2019, part of the VAT raised in Scotland is to be assigned to the Scottish Government. From dates still to be determined, a new, fully-devolved air departure tax (ADT) will replace air passenger duty (APD) in Scotland, and aggregates levy will also be devolved.
The wider UK perspective
Following the progress of devolution in Scotland, other tax powers are to be devolved by Westminster.
From April 2018, Wales is to implement two new, fully-devolved taxes – land transaction tax (LTT) and landfill disposals tax (LDT). A new, partly-devolved Welsh income tax on the non-savings, non-dividend income of Welsh taxpayers will be implemented from April 2019, based broadly on the experiences of SRIT and SIT.
Northern Ireland had hoped to be able to set its own devolved corporation tax rate from April 2018, but owing to political uncertainties the date of implementation is now unclear.
ICAS experience
The ICAS Tax Board, its Scottish Taxes Committee and many ICAS members have been at the forefront of the implementation of devolved tax powers in Scotland, and this is an ongoing involvement.
ICAS has engaged with the Scottish Government since the early stages of devolution. It has advised on the creation of Revenue Scotland and the Scottish Fiscal Commission and contributed to the Scottish Budget Process Review Group. It has responded to technical consultations on SRIT, SIT, Scottish taxpayer status, LBTT, ADT, re-organisation of the Scottish tax tribunals, and a Scottish approach to taxation.
ICAS has also worked in partnership with the Fraser of Allander Institute, a leading economic research institute at the University of Strathclyde, presenting its views on practical and administrative tax issues affecting the Scottish Budget.
ICAS influence
With approximately half its members based in Scotland, ICAS is uniquely placed to influence the development of devolved taxes across the UK.
The Tax Board intends that ICAS should contribute its experience and technical expertise across the full range of different taxes – wholly-devolved taxes, partly-devolved income tax rates and bands, and assigned VAT.
As a professional body of accountants, ICAS is well-placed to analyse issues relating to public finances, the fiscal framework and the Barnett Formula. Its tax team has appropriate experience to consider issues such as the new tax powers and policies, tax collection arrangements, specific tax measures, their impacts on taxpayers, and the strategic choices available to politicians.
ICAS is liaising with and challenging the tax authorities in Scotland, and seeking to ensure that they have adequate resources and skills. These organisations include Revenue Scotland, the finance team in the Scottish Government, HMRC in relation to SIT, and the Scottish Fiscal Commission.
On a broader front, ICAS is ready to participate in work around the wider meaning of devolution, such as how decisions are made to devolve tax powers; contrasts between Scotland, Wales, Northern Ireland and the English cities; and (within Scotland) the relationship between Holyrood and local authorities.
Tax simplification
There is an inevitable tension between devolution of tax powers, which creates additional layers of tax law and accountability, and the need to simplify taxes.
Devolved administrations gain valuable flexibility by wielding tax powers which enable them to pursue their own political ends. Scotland, in the vanguard of devolution of UK tax powers, has set out to take advantage of this in two ways – by varying the tax rates and thresholds of a partly-devolved tax (SIT), and by enacting completely new tax law with a fully-devolved tax such as LBTT.
Whether taxes are partly or wholly devolved, Westminster and the devolved administrations should work closely to ensure that tax administration is streamlined as much as possible. The need for simplicity must be borne in mind when deciding parameters with tax impact during devolution negotiations and in designing new UK-wide or devolved taxes. Politicians and civil servants must recognise the risks of adding costly additional complexity to UK and devolved tax law.
ICAS policy positions
ICAS believes that the Scottish Government should publish a rolling, five-year road map setting out the objectives of Scottish tax policy. There needs to be public awareness and accessible public information about the new taxes to enable and encourage informed decision-making by individuals and businesses.
There is no existing procedure to allow for regular maintenance of Scotland’s devolved taxes. This should become part of the annual Scottish Budget process, with an agreed timetable to allow stakeholders an opportunity to give input on any policy or operational concerns they have with the tax legislation.
The Scottish Government needs sound financial processes that provide useful and meaningful financial information to allow a better understanding of tax policy and tax collection and how these have been used to support public finances – for example, whether Scotland has gained or lost from devolved decisions on tax rates and thresholds and the behavioural consequences to which these have led. It is important that the electorate should be given sufficient information to understand the effects of tax decisions taken at Holyrood.
Scotland is not alone. All these policies should apply equally to other administrations to which tax powers are devolved.
The ICAS Tax Board’s tax policies were discussed here. They are aimed at addressing key issues, including the devolution of tax powers. Full details of these policies can be found here, and you are invited to contribute by sending your views to ICAS or by volunteering to join the Scottish Taxes Committee or any other tax committee. To do so please contact tax@icas.com.
Article supplied by Taxing Words Ltd
A free ICAS/CIOT joint event in Edinburgh on 17 January 2018 will be joined by MSPs from across the political spectrum to discuss and debate Scotland’s tax powers, their plans for Scotland’s taxes, and how these may impact on the economy.