Opinion Former Article

Agreement on Scottish tax reliefs a pragmatic step, say tax professionals

The Chartered Institute of Taxation (CIOT) has welcomed a “practical and pragmatic” agreement between the UK and Scottish Governments on changes to tax reliefs following last month’s Scottish Budget.

However, the Institute warned that the changes highlighted a widening gap between the Scottish and UK tax regimes because of the partial devolution of tax powers that would increase both the costs and complexity of administering Scottish income tax.

The agreement does not address the misalignment between income tax and the Upper Earnings Limit of National Insurance contributions, which will result in some middle-income earners paying a higher marginal rate of tax and National Insurance (NI) than those on higher incomes1.

Among the measures contained in the HMRC note Changes to tax reliefs following the Scottish Government’s Budget2 was confirmation that taxpayers impacted by the introduction of the new starter (19%) and intermediate (21%) rates will continue to benefit from Marriage Allowance at the rate of 20%, worth up to £238 per year.

In 2018/19, those Scottish taxpayers who make pension contributions under relief at source arrangements will also continue to benefit from pensions relief applied at 20% until a long-term solution can be found. The guidance also confirmed that taxpayers paying the intermediate, higher and top rates of tax will be able to claim extra relief through self-assessment or Pay As You Earn (PAYE).

Such provisions already exist for UK higher and additional rate taxpayers but the introduction of the new intermediate tax rate is likely to increase the overall number of people who are eligible to claim extra relief.

Moira Kelly, chair of the CIOT Scottish Technical Committee, said:

“The agreement between the UK and Scottish Governments on the continued operation of pensions relief and Marriage Allowance are both practical and pragmatic and give taxpayers and advisers much needed certainty a little over two weeks before the start of the new tax year.

“Complexity was always going to be the price to pay for having control over some but not all aspects of the income tax regime. While the differences next year may not be huge, they expose the vulnerability of the Scottish tax regime to increasing levels of complexity and confusion.

“The nature of our tax system already makes it very difficult for the public to understand what they pay and when they pay even before these extra complexities became known.

“It is a timely reminder of the need to move the debate on the devolved taxes away from simply working out what we will pay and when we pay it, but also how these choices interact with the wider UK tax regime.”


Notes for editors

In 2018/19, an employee earning between £43,430 and £46,350 per year will pay a marginal rate of tax of 53% (income tax and national insurance) compared with a lower marginal rate of 43% for an employee earning between £46,351 and £100,000.

In addition to Marriage Allowance and pension relief at source, the agreement also confirms that Gift Aid will continue to be paid to charities at the basic rate, with Scottish taxpayers able to claim the correct amount of additional relief on top of this. Scottish taxpayers in receipt of a social security pension lump sum will be taxed, where appropriate, at the new Scottish starter rate while landlords claiming Income Tax relief on residential property finance costs (such as mortgage interest) will continue to receive the relief at the basic rate of 20%.

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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