Elspeth Orcharton explores the practicalities of implementing Scotland's new devolved taxes and what it might mean for practitioners, ahead of next month's ICAS Tax Conference.
The Smith Commission recommendations on tax led to the publication of draft legislation to change UK tax legislation in January this year.
The draft legislation will permit the Scottish Parliament to have the promised powers over income tax rates and bands, beyond rate changes permitted under the Scottish Rate of Income Tax powers already planned to be effective from 2016.
As tax and finance professionals might expect, a lot more work than the six pages of enabling legislation will be required before further tax devolution will be delivered.
For instance, the agreement on devolving control of certain taxes to the Scottish Parliament included that there should be “no detriment” as a result of either the Scottish or UK Governments decisions post devolution, on the other Government’s finances. And changes to taxes in either jurisdiction should only have an impact on spending in that jurisdiction. Any detriment caused should be reimbursed by the other Government, or windfall shared by the other Government. (The Report of the Smith Commission for further devolution of powers to the Scottish Parliament, 27 November 2014, para 95)
With the practicalities of implementation still to be determined, I will explain the challenges of agreeing what 'no detriment' means, and approaches to calculating the economic effects and consequences for Scotland and the rest of the UK.
This sounds simple and fair. But it has led to a whole series of questions around different scenarios, given that income tax rates and bands are devolved to Scotland but the tax base is not. It also requires a detailed understanding of the methodology of allocation tax receipts and public spending in the UK across the UK. We await from public officials some examples of what is actually being proposed so we can all be clear on the impact of any future changes in tax rates.
Behind the scenes, there are ongoing parliamentary and intergovernmental processes involved, which I will provide a brief update on at the conference. So far, this suggests a quick conclusion to the discussions is unlikely, but it should not be rushed.
The more immediate pressure will be timetable for delivery by HMRC later this year of the process and practicalities of identifying the Scottish Taxpayer base, and HMRC's readiness for collection of the Scottish Rate of Income tax from 2016.
In my session at the ICAS Tax Conference, I will give an overview on the ongoing work to deliver the income tax powers, the assignment of VAT revenues, and control over air passenger duty and aggregates levy.
Practitioners and businesses will also gain a better feel for the impact on their clients and operations from these, and the latest state of play on the problematic issues of pensions relief and gift aid.
Finally, I will include reflections on the engagement ICAS staff and committees have had with the Scottish Parliament, the respective governments and HMRC in seeking to achieve a workable and considered way forward, and a possible timetable.
Elspeth Orcharton will be speaking at the ICAS Tax Conference on 21 May 2015 in Edinburgh.
Scotland's new devolved taxes are set to include income tax powers, the assignment of VAT revenues, and control over air passenger duty and aggregates levy.
The Scottish Rate of Income Tax will be effective from 2016.
Elspeth Orcharton CA, Director of Tax, ICAS
Elspeth Orcharton is a CA and took over as Director of Tax at ICAS in early 2013, after a long and successful career in professional practice, latterly as a tax partner in a 'big 4' firm. Elspeth is responsible for ICAS policy representations and consultation contributions on a full range of matters, particularly including the potential for further devolution of tax within the UK. Her role also includes the provision of tax assistance to members and liaison with members, tax authorities and governments on major tax issues.
Elspeth has given oral and written evidence to the House of Lords Treasury Select Committee, House of Lords Finance Bill Sub Committee, Scottish Parliament Finance Committee and Scottish Parliament Economy, Energy and Tourism Committee.