Scottish parliament to receive new tax powers

The Scottish parliament will be given powers to set its own tax rates under new legislation proposed this week.

Under recommendations put forward by the Calman Commission, Scottish income tax would be set at 10p per pound lower than the UK rate, with a corresponding cut in the Treasury grant to Scotland. Holyrood could then set the Scottish rate as it sees fit, depending on spending levels.

If accepted, the new rules would be implemented in full by 2015 – in time for the Scottish parliamentary elections.

The government’s Scottish secretary Michael Moore called the proposals “an important symbolic movement”.

Technical groups will be set up over the coming weeks to flesh out the detail of the legislation, including personal tax allowance limits and national insurance levels.

“The balance we are striking is between getting that accountability and empowerment on the one hand while retaining the integrity and benefits of being part of the UK economy and the wider UK tax system,” said Moore.

Among the issues to be addressed is how a Scottish taxpayer will be defined under the new rules, since there could be anomalies relating to those resident in Scotland working for British companies, or those resident elsewhere but employed by companies registered in Scotland. It will also have payroll implications for employers that pay staff via PAYE.

The Federation of Small Businesses was among the professional groups consulted on the topic at a meeting held yesterday. Commenting on the proposals, Colin Borland, public affairs manager for the FSB in Scotland told AccountingWEB: "It's an ambitious programme. The debate so far has been characterised by a lot of macroeconomic questions about competitiveness and the effect this could have on inward investment into Scotland, but decision makers should remember that 99% of the businesses in Scotland are small businesses, so we need to ensure that these employers' interests are foremost in their minds when it comes to implementing this".

"Before anything is implemented we need to have a better understanding of how well prepared HMRC are for these changes," stressed Borland.