New income tax regime requires rethink of Holyrood’s fiscal oversight
The Chartered Institute of Taxation (CIOT) in Scotland has renewed its call for the introduction of an annual Scottish Finance Bill to improve public and parliamentary scrutiny of the devolved taxes.
It comes as the Scottish Parliament prepares to vote on Feb 20 on the introduction of new rates and bands of income tax1 from April this year, which will result in further fiscal divergence between Scotland and the rest of the UK.
Last May, the CIOT recommended to Holyrood’s Budget Process Review Group that the introduction of an annual Scottish Finance Bill could improve scrutiny of devolved tax legislation2.
In renewing its call, the Institute pointed towards the increased complexity for Scottish taxpayers arising from the move to a 5-band income tax regime that it said had received limited parliamentary scrutiny. These will now require changes to UK-wide legislation in the 6-week period between Holyrood setting tax rates and the start of the new tax year3.
These include amendments to ensure that Scottish taxpayers with relief at source pension arrangements continue to benefit from the correct amount of tax relief on their pension contributions while also ensuring that starter and intermediate rate Scottish taxpayers continue to benefit from marriage allowance.
Moira Kelly, chair of the CIOT Scottish Technical Committee, said:
“Today is a historic day in Scotland’s devolved tax journey, but the price to pay for exercising these powers will be increased complexity for almost all Scottish taxpayers.
“Until now, the debate has focused almost exclusively on who will pay what, when they will pay it and whether they will be better or worse off as a result of the Scottish Government’s new income tax policy.
“But with less than six weeks to go until the start of the new tax year, there are a range of issues that require amendments to UK legislation to deal with issues such as determining eligibility for marriage allowance and ensuring that the appropriate amount of tax relief is calculated for pension contributions and gift aid contributions.
“This is particularly pressing in respect of pensions, where the new starter and intermediate rates of tax may mean that increasing numbers of Scots may have to enter self-assessment in order to ensure that they not only obtain the appropriate amount of tax relief, but understand clearly their tax position.
“While it is unlikely we will see such significant and substantive changes every year, the current Scottish budget process does not lend itself well to ensuring adequate scrutiny of devolved tax legislation. An annual Scottish Finance Bill would go some way towards addressing some of the issues encountered in this year’s budget process”.
Source:Chartered Institute of Taxation
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