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.