Opinion Former Article

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 today (20 February) 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”.


Notes for editors

1.       The Scottish Parliament has the power to set rates and bands of income tax for non-savings and non-dividend income (such as rental profits, pensions or salaries). It has no control over income tax on savings income or dividends, nor does it decide who and what can be taxed (the tax base) or set the tax-free personal allowance. Similarly, taxes such as National Insurance, Capital Gains Tax (CGT) and Corporation Tax are fully reserved to the UK Parliament.

2.       See Enhanced scrutiny of tax legislation key to Scottish budget review (CIOT press release, 2 May 2017).

3.       Changes will be required to section 55A ff of the Income Tax Act 2007 in respect of marriage allowance, section 192 of the Finance Act 2004 in respect of relief at source on pension contributions and to section 414 of the Income Tax Act 2007 in respect of tax relief on gift aid contributions. Other consequential amendments are also likely to be necessary.

4.       The Chartered Institute of Taxation (CIOT)

The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.

The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.

The CIOT’s 18,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.

Contact: Chris Young, External Relations Officer, 07900 241 584; cyoung@ciot.org.uk

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