Scots plan separate tax agency

HMRC has thrown up some practical hurdles to the devolution of tax-raising powers to the Scottish government.

In recent weeks MSPs at Holyrood have been holding hearings on the practical implications of the Scotland Act that have highlighted a number of concerns for HMRC and the accountancy profession.

HMRC is under no obligation to collect any new levy imposed by a Scottish government, the committee heard. For operational reasons, the tax department can veto requests to collect new landfill and property taxes if they differ too greatly from the UK system. HMRC can also charge between £3m and £8m for annual administration costs, as detailed in regulatory impact assessments of the proposed measures.

Sarah Walker, deputy director and head of the devolution team at HMRC, told the Scottish parliament’s finance committee, “The way the Act is set up, the Scottish Government have a choice of whether to ask us to operate the devolved taxes, and we have freedom whether we agree or not,” the  Ayrshire Post reported recently.

“So it is completely open whether they want us to do it, and equally whether we feel we can do it, fitting in with our existing business.”

A study of Scotland’s tax future published by ICAS queried the implications of progressive and flat based tax rates and asked who would be responsible for running the Scottish tax system.

PKF, meanwhile, warned that a separate rate of income tax in Scotland could turn the country into a UK tax haven as wealthy people sought to establish residence north of the border. Working out residency for those with houses in Scotland and elsewhere could prove difficult, according to PKF tax partner Neil Whyte.

“As there are no border controls between England and Scotland, there is no way of verifying how many days are spent in either jurisdiction. As a result, it’s possible that an individual may decide residency based on the most favourable level of taxation,” he said.

Continued...

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John Stokdyk's picture

ICAS comment on plan for separate Revenue Scotland tax agency

John Stokdyk | | Permalink

On the afternoon that this item was first posted, we received the following statement from ICAS:

 

The Scottish Government has announced that it is to set up its own tax agency Revenue Scotland, to collect and administer taxes levied by the Scottish Government.

Cabinet Secretary for Finance John Swinney MSP said he had rejected the option of getting HMRC to administer devolved taxes. He claimed that Revenue Scotland “would serve the needs of the people of Scotland at a lower cost than the UK set up”.

He added that the new agency would be set up by 2015 “in line with international best practice” and would be “operationally independent and its governance enshrined in legislation”.

From 2015 powers to raise and administer stamp duty land tax and landfill tax will be devolved to the Scottish Parliament.

Mr Swinney told the Parliament that he will consult on a more progressive form of stamp duty land tax, one option could be to scrap the charge for properties under £180,000 and decrease the tax for properties under £325,000;  costs would increase however for more expensive properties.

He claimed that the Scottish Government would introduce a system “that is simple to operate and digital first” adding that they would develop IT systems to “simplify processing and reduce late payment”.

He added that they would be proposing new anti-avoidance measures.

Revenue Scotland will work closely with Registers of Scotland on stamp duty land tax and with the Scottish Environmental Protection Agency on disposals to landfill.

Mr Swinney announced a consultation on the proposals and establishment of a Tax Consultation Forum for bodies with an interest in the tax system.

Commenting on the announcement, Elspeth Orcharton, director of corporate and international taxes at ICAS, said: “This is the first time the Scottish Parliament has had to consider tax legislation. Today’s announcement is likely to set the scene for future tax developments. The tax community will study the details with great interest and ICAS will continue to engage and consult on what this would mean in practice.”

HMRC will still have responsibility for administering and collecting income tax in Scotland after changes outlined in the Scotland Act come into effect. 

Ego to the fore

taylorag | | Permalink

Does Salmond's ego know no bounds?  No doubt the horrible little (censored) wants the English to pay for this.

totally    2 thanks

kjmcculloch | | Permalink

Because that's what happens. No one in Scotland, Wales or Northern Ireland pays a penny in tax. It's the English who give us everything. With attitudes like this independence can't come quick enough for me. The other 3 nations in the UK are just scroungers, aren't we?

Attitudes    4 thanks

taylorag | | Permalink

KJM,

I am Scottish, live in the Highlands and am sick of hearing how endless oil money will keep us rich and that Scotland will be a utopia if we could only get a divorce from the UK.

Salmond has only 1 job - manage the Scottish Executive.  He only does 1 thing - blame everybody else, especially the English.

The Union (all of us) are stronger together and to suggest otherwise is simply wrong.

Be careful what you wish for ...    2 thanks

JC | | Permalink

@kjmcculloch

Personally I don't care which way it goes but realistically Scotland cannot eat its cake and have it. If a break is on the cards then so be it - but no basing currency on sterling, join the EU & Euro currency etc. in own right, own presence in UN, NATO ... and so on. But the issue with these is that on its own Scotland has no 'gravitas' and will be regarded as a minor contributor on the sidelines

Quite apart from debt apportionment (RBS et al) which could ultimately mean starting life as a new state with an overbearing burden at the outset - and with the existing PIGS countries the EU is not going to be forgiving on the monetary side

Essentially severing the Union should mean just that, and standing on ones own two feet without having the comfort of the rest of the UK as a safety net

Don't forget that the a large proportion of the oil off the north coast actually belongs to Shetland, Orkneys etc. and if they decide to remain in the UK or declare UDI on their own account or join Norway then Scotland’s  main (only major) revenue stream dries up instantly

Finally, as a UK referendum on Europe (EU) now looks more likely, surely Scotland should be regarded as a separate entity for this exercise. After all, in the interest of fairness, the rest of the UK does not want to be saddled with a decision influenced by Scotland’s vote if they do not intend to remain in the Union

@taylorag - agree

Why English money then    1 thanks

kjmcculloch | | Permalink

Where you live is irrelevant.  If you think this is all based on Oil revenue then you clearly either have chosen not to listen or are choosing what you listen to.  Why do you suggest English money will pay for it then?  Surely you must realise when the taxes reach the treasury it's impossible to say where the money for a particular project has come from.  Or are you one of those who use English and British interchangeably?

Personally I think the SNP are doing a great job of managing the Scottish Government.  You only need to glance over the border at the education system and the NHS to see that we are far better off here. 

I disagree with your last comment, I would suggest that this is simply wrong.

Kris

Orkney stay in UK    1 thanks

kjmcculloch | | Permalink

Obviously if Orkney and Shetland decided to stay in the UK, that would be up to them.  Given they have a seat in the Scottish Parliament would suggest they are Scottish though.  Orkney and Shetland feel as disconnected from London as the rest of Scotland.  This was just one of many bizarre suggestions from the Earl of Caithness.

Look, the reason for Scottish independence is nothing to do with oil revenues.  It's to do with the right to self determination.  As I already said even with our 'pocket money' we're managing our resources better than the UK government are doing in England.

At no point have the Scottish Government ever said that they are not happy to take their share of the national debt along with the same share of national assets.

Clearly time will tell ...    1 thanks

JC | | Permalink

But Mr Salmond is a smart operator and the current UK Government is in appeasement mode because they do not really want the Union to break up

Unfortunately it is all about money and the taxpayer headcount in Scotland is just not sufficient to balance the books at current spending levels - which would inevitably mean cuts

Mr Salmond realises the harsh financial realities which is why he is trying to hedge his bets with 'devo max'; which essentially comes down to greater autonomy without financial responsibility for finding the money to pay for decisions

Like it or not the right to 'self determination' come at a price and if Scotland cannot afford to finance the show then there is a problem - which Mr Salmond recognises but is just to canny to spell out to the electorate

Instead he continues to make demands and play the nationalism card in an attempt to trump all else; he is making progress because the current Government is simply not of sufficient calibre or intellect to counter him

But ultimately if you cannot afford it then it cannot be done - which is what all Mr Salmonds 'horse-trading' & posturing is all about

KJM

mn2taxhbj | | Permalink

I think you will find that Alex Salmond did suggest that Scotland would not take on any share of the RBS debt - his reason for saying this was "failure of london to supervise the banks" - on Channel 4 on 11 January 2012

"Challenged as to whether this would be fair, given the outstanding debts of RBS - a bank based in Scotland - Mr Salmond said: "Obviously the people responsible for that, just as the people who took the corporation tax over the Royal Bank of Scotland, were the London Treasury, and unfortunately they were also responsible for misregulating the financial sector as well. I'm afraid people have to take responsibility for the past mistakes they made." 

Darien Scheme debts ...    1 thanks

JC | | Permalink

@mn2taxhbj

This goes back to Mr Salmond being a smart operator, but the problem with denying the RBS debt is that it takes no account of history and how the Union came about in the first instance

It is all very well saying '.. I'm afraid people have to take responsibility for the past mistakes they made ..' which is a perfectly reasonable statement on its own in isolation

However, applying his own principles Mr Salmond seems to have lapse of memory about the 'Darien scheme' http://en.wikipedia.org/wiki/Darien_scheme which was one of the motives for the 1707 Acts of Union (a bail-out) when Scotland were granted £398k to offset future liability towards the English national debt

So coming back to '.. I'm afraid people have to take responsibility for the past mistakes they made ..' in theory England should be paid back (£398k since 1707 - 305 years at say 5% pa compound) because this would be strictly according to Mr Salmonds own words

Obviously it will not happen, but it does demonstrate just how fickle Mr Salmond can be when making statements that nobody challenges - dealing with Mr Salmond is rather like trying to pick up mercury

Tax Offices in Scotland    2 thanks

pauljohnston | | Permalink

Assuming that this all takes place I assume that English Tax Offices could not remain in a foreign state.  The job losses and salary income will be heavy burden

Has Mr Salmon taken this into account?

Stuff the independence debate .....    1 thanks

ThornyIssues | | Permalink

What this does give Scotland is the prime opportunity to :-

1) Simplify the tax system.

2) Reduce the cost of collection.

3) Reduced tax office head count and therefore drain on the pubic purse.

4) Streamlining and integrating services.

5) Boot out the exorbitant LargeMultiNatCo suppliers who off-shore or use ICT visa cheap labour.

6) Development jobs for Scottish companies.

7) Reduce the burden on all taxpayers, business or otherwise.

8) Stop employers being unpaid tax collectors.

9) Divorce tax and employment law to stop the stupidity of HMRC "deeming" employment for tax purposes. No more IR35!

Result! 

Citation

ThornyIssues | | Permalink

JC wrote:

Unfortunately it is all about money and the taxpayer headcount in Scotland is just not sufficient to balance the books at current spending levels - which would inevitably mean cuts

Citation needed!

Financial reality ...

JC | | Permalink

@ThornyIssues

Unfortunately in this particular debate (leaving the Union) very few of the Scots in favour of leaving believe anything anyone says except Mr Salmond utterances

Even when presented with researched information common sense departs and nationalism takes over, but unfortunately no amount of nationalism will balance the books and some of the finances are in la-la land

See the following prepared by Taxpayers Scotland which spells out some of the issues

The report by Taxpayer Scotland warns that even with annual oil and gas revenues of £6bn, the country spends £9bn more every year than it generates in revenues.

"Scotland continues to practice Ponzi scheme government, with little sign of any understanding that this can only end in real problems for the public purse – especially if English beneficence is taken out of present balances and even if all oil revenues become Scotland's," said the report.

The Barnett formula hands 10p of every £1 the Government distributes to Scotland. To replace this money at present would require Scotland to borrow £7.5bn every year and Taxpayer Scotland says the country's annual deficit would be "much nearer" to 30pc of GDP than the 15pc calculated by the latest Government Expenditure and Revenue Scotland report.

For a more detailed view of Scotland Taxpayer - see Section 2 The Taxpayer

The reservoir of money wealth across Scotland is therefore not deep. Indeed, the number of net taxpayers (families who pay more in tax to the state than they receive in transfer payments from the state) has been reported to be only 125,000 in Scotland

http://www.taxpayerscotland.com/news/StateofScotland_Debt_Jan2012.pdf

Just read your post and would like to appreciate

JERRYtom | | Permalink

nice blog

 

I know the difference...

taylorag | | Permalink

... "British" is what Salmond doesn't want to be.  "English" is who gets the blame for his bad decisions.

A few key questions that Emporer Eck has not answered include: Why should Scotland be allowed to start with no share of the RBS debt?  Could an independent Scotland have bailed out RBS? Without the Barnett formula, who will pay from our free prescriptions?  Who will pay for the unemployed defence workers when the Royal Navy leaves Faslane? How can we have the same level of benefits as now AND an oil fund like Norway?

JC, we have, sadly, become a nation of scroungers (not all of us, but as a general attitude). We expect a divorce from the rest of the UK and still have them continue to pay for us because we want to spend more than we earn.  Maybe we're England's trophy wife!?!

I used to be proud to be Scottish.  Not any more thanks to the SNP and their anti-English (and therefore anti lots of my family) diatribe.  Time to remember that my granny was from Berwick-on-Tweed methinks!

mraccyd's picture

Where is the rest of the UK's vote?

mraccyd | | Permalink

It still surprises me that if Scotland is having a vote on being part of the UK, surely the rest of the UK should be allowed a chance to have their say?

I can't see why the SNP are so against the rest of the UK being allowed their chance to vote - surely I as an English/Welsh/ Northern Irish citizen of the UK have as much right to decide who forms part of the union as the Scottish? Why deny the right of self-determination to the majority of the UK, putting too much power in the hands of the (relative) few........

Maybe its because he's worried about having to deliver on some of those promises when he has to pay the bills rather than the rest of the UK picking up the tab.........

New Tax Agency    1 thanks

Jack Jones | | Permalink

Political issues aside, i think this would be a wonderful opportunity for Scotland without the inefficiencies, idiosyncracies and and inequalities of the current system known as HMRC. If it goes ahead, I hope they dont squander the opportunity.

Political decisions cost money …

JC | | Permalink

@Jack Jones

Don’t think one can divorce politics from finance – yes in an ideal world implementing policy changes or new ideas would be free but in reality this is not the case

Where is the money for this new initiative coming from – who is expected to bankroll the deal?

No objection at all to the ideas and perhaps this would be a great opportunity for Mr Salmond to demonstrate that he can fund the process from Scotland’s own resources with no external assistance

After all if he is unable to fund a relatively minor project such as this then how on earth does he expect to bankroll the country if they become independent?

To be rather crude - Mr Salmond needs to put his money where is mouth is!

@JC: Who allegedly ate the cakes, etc, maybe? And 4 more Qs ...

dstickl | | Permalink

JC wrote:

@kjmcculloch        Personally I don't care which way it goes but realistically Scotland cannot eat its cake and have it.      ...

Hi JC!   Couldn't Mr Salmond perhaps just argue that "cakes are for eating as well as having", as allegedly perhaps evidenced by the size of his photogenic jaw?

Also, if you recall the MPs' expenses saga or scandal, here's a link:-

http://www.telegraph.co.uk/news/newstopics/mps-expenses/5299733/Alex-Sal...

[... /5299733/Alex-Salmond-claimed-800-for-food-on-MPs-expenses-during-recess.html],     I have to ask if it's true that Mr Salmond did charge taxpayers like me for £800 for food, when the House of Commons was in recess?

And, contrary to the thrust of the alleged "party line defence" apparently fashionable at the time of the discovery under liberation/freedom of information, am I correct in thinking that the WENKAR "Commons' rules" at the time - in accordance with each MP's personally signed confirmation attestation statement at the foot of each MP's Commons' expenses claim form - were that an MP's expenses properly claimable for refund (in a role as an MP) should be:

Wholly,

Exclusively,

Necessarily,

Knowingly

Above

Reproach?

Finally: Is there a hint here of an Eric Morecombe joke to Andre Previn?

Departed from the original post

mn2taxhbj | | Permalink

As usual on any debate about Scots issues on any website   the thread has diverged from the original question, which was to do with the establishment of a separate Revenue Scotland to collect the taxes devolved to Scotland!

As tax professionals we are all fully aware of the inefficiences of HMRC, and the civil service mentality inherent therein as a long standing London centric organisation.  Given that the LBTT will be a key issue for Scotland, being the first devolved tax, it is perfectly understandable that a separate collection/enforcement mechanism is being sought.  You may not all be aware that HMRC currently only has 93 staff in total to deal with SDLT for the whole of the UK and is looking for a 20% cut in these numbers....  As for computer systems HMRC's track record is as pathetic as any major organisation in the world.....  

HMRC could, if properly staffed and with a proper electronic risk awareness sytem, extract significant additional revenue by concentrating on stopping avoidance schemes for residential property - many of which are not effective, but rely on the return not being investigated within the permitted period, and also apportionment issues.... howver resources are concentrated on issues such as the properties owned by non-natural persons which only affect London.

Instead of attacking Scotland for considering independence I would urge all English people to look at regionalisation ......

 

 

 

@mn2taxhbj:No.We've added value to "the original 'SNIP' post"...

dstickl | | Permalink

mn2taxhbj wrote:

As usual on any debate about Scots issues on any website   the thread has diverged from the original question, which was to do with the establishment of a separate Revenue Scotland to collect the taxes devolved to Scotland!   ...

Hi mn2taxhbj!     In my humble opinion (IMHO) : Sorry, but No. We've just added value - however unwelcome to some - to "the original post", which included the words QUOTE Lower corporate and personal tax rates are a central plank of Scottish Nationalist first minister’s Alex Salmond’s economic policy, and he favoured a separate tax body to administer tax collection ENDQUOTE because, whilst it may be true that the real name of Scottish Nationalist first minister’s Alex Salmond’s party should be SNIPScottish Nationalist Independence Party), the problem that I perceive is the alleged apparent hypocrisy already exercised by Leader [?President?] Alex Salmond over public money raised by taxes, and allegedly spent contrary to a personally signed/sworn Commons' declaration.

mn2taxhbj wrote:

...    Instead of attacking Scotland for considering independence I would urge all English people to look at regionalisation ......

Oh dear! IMHO, the problem with your "urge" mn2taxhbj, is that you apparently fail to recognise the inevitable taxation implementation difficulties of "where to draw the regional etcetera line", and the concomitant virtues of a United Kingdom that extends to the coasts of Britain, etc.  May I politely suggest that, given your apparent knowledge/ skills/ experience/ expertise as a tax professional, you try to make real efforts to bring pressure to cause constructive change to [in your words of] QUOTE the inefficiences of HMRC, and the civil service mentality inherent therein as a long standing London centric organisation ENDQUOTE, instead of just trying to snip/cut and run away from UK taxation policy and implementation problems that clearly need some solutions as per your skill set?

dstickl

mn2taxhbj | | Permalink

As you know nothing about me or what my role involves, the personal abuse is unwarranted and I do not intend to make any further comment

@mn2taxhbj: Sorry, but I've merely exercised my human right of

dstickl | | Permalink

mn2taxhbj wrote:

As you know nothing about me or what my role involves, the personal abuse is unwarranted and I do not intend to make any further comment

Sorry, but I've merely exercised my human right of freedom of expression of opinion to comment on my interpretation of some of the words that you wrote - that appeared immediately after my first posting today on this thread - which, in my humble opinion, doesn't require any other personal data about you or what your role involves.

Contrary to your assertion of your second phrase, no personal abuse was intended.

Trial

ThornyIssues | | Permalink

Why can't the opportunity of a "sorted" tax system in Scotland not be used as an excersise by England, rather like Mrs Thatcher did with the Poll Tax - and trial it in Scotland.

Still no answer on funding ....    2 thanks

JC | | Permalink

@mn2taxhbj

'.. As usual on any debate about Scots issues on any website the thread has diverged from the original question, which was to do with the establishment of a separate Revenue Scotland to collect the taxes devolved to Scotland! ..'

Did it really deviate or were very valid issues raised about how Scotland intended to pay for implementation - these questions have consistently avoided being answered

Surely as accountants, finance is one of the cornerstones of the profession and yet the amount of 'ducking & diving' that goes on when asked a simple question about funding is extraordinary

Not '.. attacking Scotland for considering independence ..' just asking how it will be funded. Unfortunately getting a straight answer on this topic seems almost impossible (as evidenced by this thread) and regrettably a leaf seems to have been taken out of Mr Salmonds 'evasive manual'

@ThornyIssues

Excellent inventive idea to once again avoid answering the funding question - mutualise it over the whole UK as a 'trial' and therefore avoid Scotland paying for it

Quite frankly this matter (separate Revenue Scotland agency) was raised by Scottish government as a route they wished to take and that is just fine - now get on with it.

But first Scotland needs to work out how it is going to be funded and let us all know

Come on - surely the funding question is not rocket science - just 'come clean' and please explain how it will be done

@ThornyIssues:Great !Let's start with trial of 'No IR35 if >SPA'

dstickl | | Permalink

ThornyIssues wrote:

Why can't the opportunity of a "sorted" tax system in Scotland not be used as an excersise by England, rather like Mrs Thatcher did with the Poll Tax - and trial it in Scotland.

Hi ThornyIssues! You made a great suggestion, and I like your idea of introducing comparative competition within the UK's tax collecting authority - similar to the comparative competition between water companies! 

May I suggest a start with a focused improvemnt to that well known "fiscal horror" of IR35?   In view of Treasury Minister Danny Alexander MP's alleged apparently stated view that no-one over State Pension Age (SPA) has to pay UK National Insurance, may I suggest that the HMRC Scottish area starts with a trial of 'No IR35 deemed payments due if the worker is aged over SPA, for companies registered in Scotland' , and that politicians (such as Ed Balls MP) look out for the concomitant economic growth?

No NI on > SPA

ThornyIssues | | Permalink

@dstick

I have a much better idea. May I suggest that by simply reducing CT in Scotland, Balls et al will easily identify concomitant economic growth.

@ ThornyIssues: What would be the relative costs in terms of ...

dstickl | | Permalink

ThornyIssues wrote:

@dstick            I have a much better idea. May I suggest that by simply reducing CT in Scotland, Balls et al will easily identify concomitant economic growth.

Hi ThornyIssues!    Interesting: What do you think would be the relative costs in terms of reduction of HMRC tax take in Scotland of:

(A) Your idea of "simply reducing CT in Scotland", and 

(B) My idea of 'No IR35 deemed payments due if the worker is aged over SPA, for a worker with a PSC registered in Scotland' ?

Not a Scoobie

ThornyIssues | | Permalink

dstickl wrote:

ThornyIssues wrote:

@dstick            I have a much better idea. May I suggest that by simply reducing CT in Scotland, Balls et al will easily identify concomitant economic growth.

Hi ThornyIssues!    Interesting: What do you think would be the relative costs in terms of reduction of HMRC tax take in Scotland of:

(A) Your idea of "simply reducing CT in Scotland", and 

(B) My idea of 'No IR35 deemed payments due if the worker is aged over SPA, for a worker with a PSC registered in Scotland' ?

 

In actual figures - not a Scoobie TBH but as there can't be as many workers over SPA in (or willing to move to) Scotland as comapred to the tsunami of incorporations that would result if Scotand reduced CT. I would expect that the tax take would be slightly up from SPA/IR35 and greatly increased from CT reduction. So, I don't think the tax would be reduced in either senario.

If added to a reduction in overall cost of collecting tax e.g. a Scottish tax authority, it would be a win-win situation without a doubt.

 

@ThornyIssues:Ta but (1) Why does worker have to move & (2) UK-S

dstickl | | Permalink

ThornyIssues wrote:

dstickl wrote:

ThornyIssues wrote:

@dstick            I have a much better idea. May I suggest that by simply reducing CT in Scotland, Balls et al will easily identify concomitant economic growth.

Hi ThornyIssues!    Interesting: What do you think would be the relative costs in terms of reduction of HMRC tax take in Scotland of:  (A) Your idea of "simply reducing CT in Scotland", and   (B) My idea of 'No IR35 deemed payments due if the worker is aged over SPA, for a worker with a PSC registered in Scotland' ?

In actual figures - not a Scoobie TBH but as there can't be as many workers over SPA in (or willing to move to) Scotland as comapred to the tsunami of incorporations that would result if Scotand reduced CT. I would expect that the tax take would be slightly up from SPA/IR35 and greatly increased from CT reduction. So, I don't think the tax would be reduced in either scenario.   

If added to a reduction in overall cost of collecting tax e.g. a Scottish tax authority, it would be a win-win situation without a doubt.

Thanks ThornyIssues, but:      (1) as the fiction of the "fiscal horror" of IR35 is that it is the PSC (Personal Service Company) - not the worker - who is responsible for paying the scandalous deemed payment, then surely the worker him- or her-self would not have to move residence from say England to Scotland, in order to enjoy the benefit of my idea of 'No IR35 deemed payments due if the worker is aged over SPA, for a worker with a PSC registered in Scotland' ?     and

(2) if the CT tax take would go up in Scotland, wouldn't the concomitant CT tax take go down in the rest of UK (i.e. in the region of the UK less the region of Scotland)?  And wouldn't the sum of those two be less than the 'CT tax take previously' ?