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Holyrood set to take control of income tax

27th Nov 2014
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The Smith Commission has recommended that Holyrood should take almost complete control over income tax. The UK Treasury would retain control of personal allowances and taxation of savings income.

The Scottish Parliament should be given the power to set income tax rates and bands on earned income and retain all of the income tax raised in Scotland, the commission said this morning.

A share of VAT would be assigned to the Parliament, and air passenger duty would be fully devolved.

The Smith Commission report is available on the commission’s website. The UK government has undertaken to publish draft clauses, implementing the consensus set out in the report, by 25 January 2015.

Lord Smith of Kelvin was asked to work with the five political parties represented in the Scottish Parliament – Conservative, Green, Labour, Liberal Democrats and the SNP – to agree on what further powers should be devolved. “Significantly more devolved spending in Scotland will now come from tax raised in Scotland with the remainder coming from the block grant provided by the UK government,” he said in a foreword.

The Barnett Formula “will continue to be used” to determine the remaining block grant, he said.

Income tax

The UK and Scottish Parliaments will share control of income tax and MPs representing constituencies across the whole of the UK will continue to decide the UK’s Budget, including income tax, the commission said. “Within this framework, the Scottish Parliament will have the power to set the rates of income tax and the thresholds at which these are paid for the non-savings and non-dividend income of Scottish taxpayers (as defined by the Scotland Act).”

There will be “no restrictions” on the rates or thresholds the Scottish Parliament can set.

“All other aspects of income tax will remain reserved to the UK Parliament, including the imposition of the annual charge to income tax, the personal allowance, the taxation of savings and dividend income, the ability to introduce and amend tax reliefs and the definition of income.”

HMRC will continue to administer and collect income tax.

Other taxes

“All aspects” of national insurance contributions, corporation tax, capital gains tax, inheritance tax, and fuel and excise duties, will be remain reserved, the commission said.

The receipts raised in Scotland by the first 10 percentage points of the standard rate of VAT will be assigned to the Scottish Government’s budget.

Air passenger duty charged on passengers leaving Scottish airports will be devolved to the Scottish Parliament, and aggregates levy will be devolved once current legal issues have been resolved.

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Replies (15)

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By Myshkin
28th Nov 2014 11:50

Scottish VAT

Can anyone explain to me how Scotland retaining 10% of VAT receipts is going to work?  Are all the cross border companies like Tesco/B&Q/Asda going to have to split all their purchases between Scottish and English sales?  Same with all insurance companies banks etc?


Or do all cross border companies do this already?


I get the impression the Smith Commission just thinks VAT is a sales tax that Scotland can have 1/2 of.

And Smith a Chartered Accountant too.

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By CJaneH
28th Nov 2014 11:53

Scottish Income tax

Is Scottish income tax to be collected based on:


1     The employers head office


2     Where the employee is working


3     Where the employee lives.


This seems a complete minefield for HMRC, Payroll software designers & employers.


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By taylorag
28th Nov 2014 12:16

What a total mess

Can we not just close the shortbread senate and be done with all this patently anti-English nonsense? All it's doing is causing antagonism and providing jobs for 2nd rate politicians who would be eaten alive at Westminster. (ps I'm 3/4 Scottish, 1/4 English before the accusations start flying!)

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By ianthetaxman
28th Nov 2014 12:30

Very messy...

@CJaneH - The original plan was that you would be a Scottish taxpayer if your main residence was in Scotland, so on that basis, the location of an employer wouldn't matter.  I agree that this will make for interesting discussions in the software houses, as advisors may have clients who live in both England and Scotland (and let's not forget Wales, who will be following suit), so the tax software will need to be able to accommodate both tax regimes.  How HMRC will differentiate between them all is anyone's guess.  




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By MargaretThornton7
28th Nov 2014 13:20

residence and domicile

We already have the most complex laws possible to decide if a person is resident and/or domiciled in the UK. If they just apply the same rules to determine residence in England, Scotland or Wales it will be hugely complex. Split year calculations will apply.


Deep Joy ahead... looking for my cold towel already


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By coolmanwithbeard
28th Nov 2014 16:10

Residence is the norm

Currently residence is the norm not employer but then that has something to do with not being able to raise taxes from citizens in other countries. I can see this being an issue for the likes of the oil industry who work out of Aberdeen but employ folk across the UK.


Fortunately the scottish borders are not particularly densely populated!!


Of course we have not had to face attached other countries before so it may be that PAYE will operate according to employer but you can adjust according to residence may be with a coding adjustment or through self assessment or a simple adjustment form at the year end?


Whatever happens the burden should not be on employers to have to manage and make decisions or we could end up with a "Booklet 495 - Devolved Taxation" with examples in....

"Benjy worked for a Scottish company with UK wide branches and lived 4 months of the year in each country as he worked in three branches and rented a local bedsit. He has no other home. How much tax should he pay in each country and what is his overall liability"

"Davey works with Benjy and also rented a bedsit in each country but retained his home in Ecclefechan - what would his tax position be"


Mark owns a houseboat and sails around the coast and takes paid work where he can. He had jobs in Cardiff, Bristol,  Brighton and Calais during the year and spent 3 months moored outside the UK12 mile territorial waters.


Alex represents a constituency in Scotland but is paid by the UK parliament ... he has a flat in London where he is resident for 184 days a year if he also has 5 Scottish directorships and sells his third home in Scotland what is his marginal rate of tax?


If you think Ecclefechan is in Wales go back to example2 and do it again



Thanks (3)
By Carat
28th Nov 2014 16:50


M of the four the easiest one to answer is the last one, because the Scotland Act deems anyone who represents a Scottish constituency to be a Scottish taxpayer.

Looking at some of the other answers above, I think there needs to be a sharp reading course in preparation for the Scottish Rate of Income Tax which is fully legislated and comes in on 6 April 2016. This determines a Scottish taxpayer by location of their main home and imposes duties on employers throughout the UK to operate the SRIT on their Scottish taxpayers.  A example often quoted is the CIOT which is an English registered charity with its head office in London.  They ploy several technical officers who work form home and live in Scotland, and who are regarded as Scottish taxpayers.  Advisers all over the UK will need to be  up to speed  on these rules and what it means for their clients.


Oh and as a blatant plug I'm based in the Scottish borders and would be delighted to assist anyone who ahs Scottish resident clients .



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By Ken of Chester le Street
29th Nov 2014 17:37

scottish tax

Every day I get gladder I have retired.

I'm a CA ,resident and ordinarily resident in England, and domicled there!

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Chris M
By mr. mischief
29th Nov 2014 22:27

How hard can it be?

Last time I looked, the USA had 50 states each applying its own state income taxes.  Not only that, some states' taxes are radically different to other parts of the union.

Unless I missed something, the IRS, Congress and Senate are not continually [***] about how impossible this 50 tax system is to administer.

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Sarah Douglas - HouseTree Business Ltd
By sarah douglas
01st Dec 2014 10:46

I am looking forward to this


I believe this will be good, provided it is trashed out well first. It really is only the first stages so there is a lot to do before final decisions are made. 

I am a big fan of the Scottish Parliament as our many others in Scotland.  Comments about it been a short bread senad and the lack of Westminster Activity in the  North East England, Wales NI   just show up the reason why so many Scots want a parliament. 

I am anything but anti English as I would have to dislike my own family.  Anyway that regardless the Scottish Parliament is going no where. 

I would have no problem getting rid of the Scottish Parliament if Westminster did what they were supposed to do and that is too represent all of the UK , yes every region not just a couple.  I don,t ever see that happening unfortunately so we are were we are because of it. 

On the plus side it will give accountants more work. 

Oh if were plugging for business I will to .   




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Replying to Paul D Utherone:
By John Wheeley
01st Dec 2014 14:10

Administrative Nightmare

This looks like an administrative nightmare. Red tape and extra rules to learn.

What happened to tax simplification ?

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Replying to Red Leader:
By Carat
01st Dec 2014 17:55

Just wait till Wales gets tax-raising powers!

And then there could be nine different rates of tax across mainland UK!


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By AndrewV12
16th Dec 2014 14:28

Lower taxes?

Alex Salmond (yes that is how you spell it) advised when he was campaigning for independence he wants Scotland to become a low Corporation tax region.  I am unsure if the SNP control Holyrood, but they may soon.

But how will this impact on Income Taxes set in Scotland, will these also be low or will they have to make up for shortfalls in Corporation Tax.


Also when problems occur who will the SNP blame, I know it will not be themselves. 

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Replying to The Dullard:
By Carat
16th Dec 2014 14:47

Are you having a laugh?

AndrewV12 wrote:

Alex Salmond (yes that is how you spell it) advised when he was campaigning for independence he wants Scotland to become a low Corporation tax region.  I am unsure if the SNP control Holyrood, but they may soon.

But how will this impact on Income Taxes set in Scotland, will these also be low or will they have to make up for shortfalls in Corporation Tax.


Also when problems occur who will the SNP blame, I know it will not be themselves. 


Andrew - yes the SNP are the majority party in Scotland (despite the parliamentary system being set up so that no party was supposed to be able to gain a majority of seats) and as Labour has collapsed this is not likely to change in the 2016 elections.  You can be certain that the upper rates of tax will rise so that SNP spending commitments can be met in full .- particularly in funding Scotland's bloated public sector

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Replying to The Dullard:
By AndrewV12
16th Dec 2014 15:06

Are you making some kinda joke?

Yes I think the upper rates of Income tax will rise in Scotland.


AAhh just remembered the SNP lost the vote and Corporation tax in Scotland will not be at a very low rate, but I had a feeling income tax rates in Scotland will probably go up, if this is the case i will be right but for the wrong reasons.


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