Press release: Risk of complexity for taxpayers in Draft Scottish Budget

The Scottish Government published its Draft Scottish Budget for 2018-19 today,¹ after a discussion paper on The Role of Income Tax in Scotland’s Budget in November.

The headline announcement, which will increase the differences between Scottish taxpayers and taxpayers in the rest of the UK, is the increase in the number of income tax bands which will apply to non-savings, non-dividend income. Income in this category, which includes employment income, pensions and rental income, will now be subject to a range of five different rates from 19 per cent to 46 per cent.² Previously the main difference to the rest of the UK had been the point at which higher rates of tax applied.

Yvette Nunn, Co-chair of ATT’s Technical Steering Group, said:

“Now that rates of income tax are going to diverge more significantly north and south of the border, it is crucial that HMRC are able to identify who is a Scottish taxpayer.  This is something that the National Audit Office raised as a concern in its latest report published  in November.³ It is also an area of concern that the ATT has raised in the past for specific groups of taxpayers.⁴

“Scottish taxpayers with savings and dividend income will still be using UK-wide rates for these sources of income. The new rates for non-savings and non-dividend income will introduce further complexity in the computations that HMRC software developers need to programme. In 2016-17 HMRC struggled to get their software specifications correct. This meant a number of self-assessment returns for this year have had to be submitted on paper, rather than electronically as HMRC’s software was not producing the correct tax liability for those cases. We would not want to see a repeat of this problem when calculations are made yet more complex for Scottish taxpayers.

“Scottish taxpayers with multiple employments and/or pensions will also need reassurance that their overall tax figure is correct when these new rates come into force. If a lower rate is applied incorrectly to more than one of their sources there could be some nasty surprises when their tax is reconciled at the end of the year. 

“Fortunately, the Scottish Government say that they are planning to increase spending on education, as Scottish taxpayers are going to need a good grasp of maths if they want to calculate their income tax for themselves in future.”

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Notes for editors

1. The Scottish Budget: Draft Budget 2018-19 can be found here. The tax elements can be found in Chapter 2 on page 20 of the report.

2. Table of rates as extracted from page 21 of the Scottish Budget report:

Scottish Bands	Band name	Scottish Rates (%)
£11,850*-£13,850	Starter	19
£13,850 - £24,000	Basic	20
£24,000-£44,273	Intermediate	21
£44,273 - £150,000**	Higher	41
Over £150,000**	Top	46
* Assumes individuals are in receipt of the Standard UK Personal Allowance. **Those earning more than £100,000 will see their Personal Allowance reduced by £1 for every £2 earned over £100,000.

3. The NAO report on The Administration of the Scottish Rate of Income Tax can be found here.

4. An ATT press releases on concerns that Scottish individuals living abroad may not be receiving the correct tax code can be found here.