devolved taxation in Scotland

Are you aware of devolved taxation in Scotland?

The Chartered Institute of Taxation and the Institute of Chartered Accountants of Scotland wants Scotland’s political parties to do more to improve public awareness of devolved taxation during the next Scottish Parliament.

A new poll has shown that a third of Scots are aware that the Scottish Parliament has made changes to the tax system in Scotland.

In a new paper, called Building a Better Tax System, the tax and accountancy bodies have set out their priorities for a devolved taxation system in the next Scottish Parliament.

A new income tax regime for Scotland was introduced in 2018.

According to the poll, 33% of Scots were unaware that the Scottish Parliament had made changes to the tax system since 2015, including changes to income tax and council tax.

The survey also found that 26% of respondents were ‘not aware of’ the powers held by the Scottish Parliament to change income tax rates in Scotland.

25% said they were unaware of Holyrood’s powers over Council Tax, Business Rates, and Land and Buildings Transactions Tax.

Only 27% of respondents correctly identified that income tax powers are shared between the Scottish and UK parliaments, with declining awareness of these shared tax powers since the original survey back in 2018.

According to the survey, 83% of Scots think they need better information about how taxes in Scotland are decided.

39% said they knew a little or a lot about the Scottish Taxpayer status, which governs the rules that define who is eligible to pay Scottish Income Tax).

Within their paper, the CIOT and ICAS want to see several changes introduced in the next Scottish Parliament. Proposed changes include:

  • Strengthening parliamentary scrutiny of tax by introducing a Scottish equivalent of the Westminster Finance Bill to make changes to the tax system easier and more visible and removing the constitution remit from the Finance Committee to enable it to spend more time scrutinising tax policy.
  • Better budget coordination between the Scottish and UK governments to overcome recent budget delays that the organisations say have ‘cut across the devolution settlement’.
  • Limiting the use of Holyrood’s tax powers as a source of ‘last minute budget concessions’ and moving towards the development of a longer-term approach to tax policy development that considers existing tax powers alongside any future proposals for new taxes.
  • Improving public awareness and understanding of the Scottish tax regime through improved visibility of tax in the Scottish political calendar and promoting tax education within the Scottish curriculum

Alexander Garden, Chair of the CIOT’s Scottish Technical Committee, said:

“As political parties set out how they plan to use Holyrood’s tax powers, it should be concerning that a third of respondents are unaware that the Scottish Parliament has made changes to the tax system in Scotland.

“The case for increased awareness has arguably been made stronger by the devolution and divergence that has taken place in recent years.

“As taxes account for a significant amount of money spent by Holyrood, it should be a priority of the next Scottish Parliament to ensure that taxpayers can understand more about Scotland’s tax powers and the changes that are being made in their names.”

Charlotte Barbour, Director of Taxation at ICAS, added:

“The reality is that at present, many of the day-to-day changes needed to maintain the integrity of the devolved tax system are either not happening, due to a lack of parliamentary time, or in a way that limits detailed scrutiny.

“Having an equivalent to the UK Finance Bill at Holyrood is one of the ways that awareness of Holyrood’s tax powers could be boosted, by making sure that tax policy is more visible in the Scottish political calendar.

“Increased awareness will become more important if discussions around the role of the Scottish tax system increase in prominence as we emerge from the pandemic.”

On the need for a more strategic approach to making Scottish tax policy,

Alexander Garden added:

“We would like to see our MSPs taking a longer-term approach to thinking about how the Scottish tax system works.

“We need to move away from the recent trend that has seen new tax measures brought in at short notice with limited consultation in exchange for parliamentary votes, and towards an approach that focuses not just on new taxes, but on how we use those we already have more effectively.

“This should include better coordination between the Scottish and UK governments around the timing of future budgets. The delays to the last two UK Budgets have highlighted challenges for Holyrood when faced with the need to agree tax and spending plans without full sight of the UK picture. We hope that will change.”