Replacement to Air Passenger Duty (APD): consultation analysis

9. Tax Return and Payment

9.1. Chapter 8 of the consultation document sets out proposals for the tax return and payment system under a Scottish APD replacement tax, highlighting the importance that the processes around tax returns and payment should be efficient and convenient for taxpayers and the tax authority. Specific proposals detailed by the consultation document relate to the following key areas:

• Information required in the tax return;
• Use of Special Accounting Schemes;
• Frequency of tax returns;
• Arrangements for submitting a tax return and making amendments to returns; and
• Paying tax, including arrangements for claiming repayment and relief.

9.2. We consider respondents' views on these issues in turn in the rest of this section.

Content of tax return

Q19: What are your views on the current level of information required in the UK APD tax return? What additional information, if any, do you think it would be beneficial to collect on a Scottish tax return in order to ensure efficient and effective compliance of that tax?

9.3. The UK APD tax return requires taxpayers to provide a range of information including total numbers of chargeable passengers within each tax band, total numbers of exempt passengers, any under or over-declarations from previous tax periods, and whether a special accounting scheme is being used. Question 19 invited written comment on the range of information currently required by the UK APD tax return, and any additional information that could be collected by a Scottish tax return.

9.4. A total of 18 respondents provided written comment (11% of all respondents) with most of these being airline respondents (8 providing comment) or individuals (5 providing comment). The majority of those providing written comment referred specifically to current information requirements for UK APD, while less than half of those providing written comment gave a specific view on information to be collected under a Scottish replacement.

9.5. Most of those providing written comment felt that the current UK APD information requirements are adequate (12 of 16 commenting on this). It is notable that this view was expressed by all airline/airline representative respondents providing written comment at Question 19, and the four responses expressing reservations around current UK APD information requirements were all from individuals.

9.6. Those who supported the range of information currently required under UK APD referred to current requirements as "adequate" and "not overly burdensome". This included specific reference to current requirements as having been tested through by experience to date under UK APD, and several respondents expressed an explicit view that maintaining these "proven" information requirements would have benefits in terms of simplifying taxpayer compliance with the Scottish replacement tax.

9.7. Most of those referring specifically to information to be collected under a Scottish replacement tax wished to see no change in the information currently collected for UK APD (7 of 9 comment on this). These respondents noted that ensuring consistency with UK APD information requirements would be consistent with the aim, stated in the consultation document, to "facilitate efficient and effective compliance" with the Scottish replacement tax.

9.8. Two respondents suggested additional information to be collected for the Scottish replacement:

• An airport/airport representative suggested that there may be value in gathering more detailed information on the profile of exempt passengers across specific exemptions.
• An individual respondent recommended consulting with stakeholders who may find value in using statistical information collected under a Scottish replacement tax, and referred to specific information types such as flight times against APD paid and numbers of exempt passengers.

Special Accounting Scheme

Q20a: Do you currently use a special accounting scheme system for UK APD?

Q20b: If you answered yes, why and what impact does this have on your organisation? What would be the advantages and disadvantages of allowing similar special accounting schemes under a Scottish replacement tax?

9.9. The UK APD framework currently allows taxpayers to apply to use a special accounting scheme, which enables taxpayers to use an alternative approach to calculating their APD liability. Such schemes can only be used in in certain circumstances (e.g. where it is impractical to calculate APD on a transaction-by-transaction basis from the taxpayer's systems), and with prior approval.

9.10. Only two respondents answering Question 20a indicated that they current use a special accounting scheme for UK APD, both being airline/airline representative respondents. Only one of these respondents provided further written comment at Question 20b. This respondent wished to see similar special accounting schemes to be retained under a Scottish replacement tax, noting that these are important for capture and assessment of transit and transfer customer data , and for accurate payment of APD.

9.11. The benefits of these schemes in enabling taxpayers to meet their obligations in a flexible and cost effective way were also cited by an airline/airline representative respondent who does not currently use such a scheme. However, another airline/airline representative respondent also noted that the benefits of such schemes are somewhat offset by their administrative complexity.

Table 9.1: Q20a Do you currently use a special accounting scheme system for UK APD?

	Yes	No	No response	TOTAL
Airlines and airline representatives	2	5	5	12
Airports and airport representatives			8	8
Other transport and travel organisations		2	11	13
Business, economic development and tourism organisations		2	23	25
Professional tax and accountancy organisations			2	2
Environmental organisations			6	6
Other organisations		2	8	10
Group respondents (Total)	2	11	63	76
Individual		15	69	84
TOTAL	2	26	132	160
Percentage of all respondents	1%	16%	83%	100%
Percentage of those answering question	7%	93%	-	100%

Frequency of tax return

Q21a: Do you agree with our proposal for a standard quarterly tax return cycle under a Scottish replacement to APD?

Q21b: If you answered no, please explain your answer.

9.12. The standard approach under UK APD is to place taxpayers on a calendar monthly tax return cycle, although taxpayers with an expected annual APD liability of less than £500,000 can apply to use an annual return cycle. The consultation document set out proposals for a standard quarterly tax return cycle for the Scottish replacement tax. This is also consistent with the tax return period used for Scottish Landfill Tax.

9.13. Relatively few respondents answered Question 21a, which asked whether respondents agreed with proposals for a standard quarterly tax cycle for the Scottish APD replacement tax; 26 responses, 16% of all respondents. This perhaps reflects the extent to which the issue of tax return cycles has most direct impact on those who will be liable to account for and pay the Scottish APD replacement tax, and has much less of a direct impact on achievement of the Scottish Government's strategic and policy objectives (which was the main focus for most consultation responses). Indeed, a number of group and individual respondents specifically stated that they were not in a position to comment on Question 21a.

9.14. The majority of those answering the question agreed with proposals for a standard quarterly tax return cycle; 17 respondents, around two thirds of those answering the question. A further 9 respondents indicated that they disagreed with this proposal, including 6 individual and 3 group respondents. The majority of group respondents answering the question supported the proposal.

Table 9.2: Q21a Do you agree with our proposal for a standard quarterly tax return cycle under a Scottish replacement to APD?

	Yes	No	No response	TOTAL
Airlines and airline representatives	7	1	4	12
Airports and airport representatives			8	8
Other transport and travel organisations	2		11	13
Business, economic development and tourism organisations	2		23	25
Professional tax and accountancy organisations		1	1	2
Environmental organisations			6	6
Other organisations		1	9	10
Group respondents (Total)	11	3	62	76
Individual	6	6	72	84
TOTAL	17	9	134	160
Percentage of all respondents	11%	6%	84%	100%
Percentage of those answering question	65%	35%	-	100%

9.15. A total of 8 respondents provided written comment in relation to their objection to or concerns about the proposed quarterly tax return cycle.

9.16. These 8 respondents comprised six who disagreed with the proposal for standard quarterly tax returns, and two respondents who did not provide a yes/no answer to Question 21a. Three of the six respondents who objected to a quarterly tax return cycle indicated that this was based on their fundamental objection to any reduction in APD, rather than any concerns regarding the change in tax return cycles per se.

9.17. The five respondents making substantive comment on the specific tax return proposals expressed a preference for consistency with the current monthly tax return cycle used under UK APD. This view was primarily linked to a desire to minimise the administrative burden for taxpayers already subject to UK APD, although one respondent suggested that a quarterly cycle would be manageable with sufficient advance notice to implement changes to IT systems.

9.18. Two professional tax and accountancy organisations also questioned the consultation document's reference to quarterly reporting providing consistency with other devolved taxes. These respondents suggested that minimising amendments to the Revenue Scotland and Tax Powers Act 2014 should not be an overriding argument for quarterly returns. It was also noted that the significant number of taxpayers who would be subject to both UK APD and the Scottish replacement tax meant that consistency in the tax return period is more important here, than consistency with other Scottish taxes where the overlap with taxpayers subject to the Scottish APD replacement tax is likely to be more limited.

Q22a: Do you think taxpayers should be able to apply to use an alternative annual tax return cycle or non-standard accounting period?

Q22b: Please explain your answer.

9.19. UK APD currently allows taxpayers who cannot account for APD on the basis of calendar months to apply for permission to base returns on their own accounting periods. Taxpayers with an estimated annual APD liability of less than £500,000 can also apply for permission to use annual accounting instead of monthly accounting. Question 22a asked whether these options should be retained for the Scottish APD replacement tax.

9.20. Relatively few respondents answered Question 22a; 25 responses, 16% of all respondents. Again this may reflect the extent to which the issue of tax return cycles has most direct impact on those who will collect and pay the Scottish APD replacement tax, and as such is less relevant to a substantial number of respondents.

9.21. The majority of those answering the question thought that taxpayers should be able to apply to use an alternative tax return cycle or non-standard accounting period for the Scottish APD replacement tax; 15 respondents, 3 in 5 of those answering the question. A further 10 respondents indicated that they disagreed with this proposal, including 6 individual and 4 group respondents.

Table 9.3: Q22a Do you think taxpayers should be able to apply to use an alternative annual tax return cycle or non-standard accounting period?

	Yes	No	No response	TOTAL
Airlines and airline representatives	7	2	3	12
Airports and airport representatives			8	8
Other transport and travel organisations	1		12	13
Business, economic development and tourism organisations	1	1	23	25
Professional tax and accountancy organisations			2	2
Environmental organisations			6	6
Other organisations		1	9	10
Group respondents (Total)	9	4	63	76
Individual	6	6	72	84
TOTAL	15	10	135	160
Percentage of all respondents	9%	6%	84%	100%
Percentage of those answering question	60%	40%	-	100%

9.22. A total of 14 respondents provided written comment in support of their answer at Question 22a. This included nine respondents who agreed with taxpayers having the facility to use an alternative annual or other non-standard tax return cycle, and five who disagreed with this.

9.23. Some of those providing further comment in favour of allowing alternative tax return cycles highlighted the importance of flexibility and ensuring a more proportionate administrative burden for taxpayers, while ensuring tax revenues - one airline/airline representative respondent described such an approach as "mutually beneficial to Revenue Scotland and the tax payer". In addition to support for an alternative annual return cycle for smaller operators, a small number of respondents also suggested permitting a more frequent return cycle for larger operators where this is consistent with their existing accounting systems. One airline/airline representative respondent suggested that this could result in greater accuracy of tax returns.

9.24. The five respondents providing further comment in opposition to allowing alternative tax return cycles included three respondents (all individuals) who repeated concerns about the fundamental basis of a Scottish APD replacement tax; two objected to any reduction in APD, and one wished to see APD abolished. The remaining two respondents providing comment included an airline/airline representative who wished to see the same tax return cycle for all taxpayers, and an individual who supported a fixed tax return cycle to enable data and revenues to be collated and reviewed more easily.

Submitting a tax return

Q23a: Do you agree with our proposal for tax returns for a Scottish replacement to APD being able to be submitted both online and by post, and having to be received no later than 30 days after the end of the relevant return period?

Q23b: If you answered no, please explain your answer.

9.25. Question 23a asked whether respondents agreed with the Scottish Government proposal for tax returns for the Scottish APD replacement tax, which represent a minor change to current UK APD processes.

9.26. As is the case for other questions relating to tax return proposals, relatively few respondents answered Question 23; 29 responses, 18% of all respondents. A large majority of these respondents agreed with the proposals; 25 respondents, more than 4 in 5 of those answering the question. A further 4 respondents indicated that they disagreed with this proposal, including 3 individuals. Nearly all group respondents answering the question agreed with the proposals.

9.27. Four of the 29 respondents answering Question 23a provided further written comment in support of their answer. This included three individual respondents who repeated objections to any reduction in APD. One business/economic development/tourism organisation commented specifically on the proposals for submitting a tax return, suggesting that taxpayers would welcome the facility to submit and pay their tax returns online.

Table 9.4: Q23a Do you agree with our proposal for tax returns for a Scottish replacement to APD being able to be submitted both online and by post, and having to be received no later than 30 days after the end of the relevant return period?

	Yes	No	No response	TOTAL
Airlines and airline representatives	9		3	12
Airports and airport representatives			8	8
Other transport and travel organisations	2		11	13
Business, economic development and tourism organisations	3		22	25
Professional tax and accountancy organisations	1		1	2
Environmental organisations			6	6
Other organisations		1	9	10
Group respondents (Total)	15	1	60	76
Individual	10	3	71	84
TOTAL	25	4	131	160
Percentage of all respondents	16%	3%	82%	100%
Percentage of those answering question	86%	14%	-	100%

Q24a: Do you agree with our proposal for taxpayers, subject to certain conditions, being able to amend previously submitted tax returns either online or by post under a Scottish replacement to APD?

Q24b: If you answered no, please explain your answer.

9.28. Question 24a asked whether respondents agreed with the Scottish Government proposal for taxpayers to be able to amend previously submitted tax returns for the Scottish APD replacement tax, subject to certain conditions. These proposals are broadly consistent with the current approach to UK APD.

9.29. Again, relatively few respondents answered Question 24; 27 responses, 17% of all respondents. A large majority of those answering the question agreed with these proposals; 23 respondents, more than 4 in 5 of those answering the question. A further 4 respondents indicated that they disagreed with this proposal, including 3 individuals. Nearly all group respondents answering the question agreed with the proposal.

9.30. Four of the 27 respondents answering Question 24 provided further written comment in support of their answer. This included three individual respondents who repeated objections to any reduction in APD. One airline/ airline representative respondent commented specifically on the proposals regarding amendment to previously submitted tax returns. This respondent supported the proposals set out in the consultation document, and noted that any increase in complexity in the system would lead to an increase in the costs of collecting APD which are borne by airlines.

Table 9.5: Q24 Do you agree with our proposal for taxpayers, subject to certain conditions, being able to amend previously submitted tax returns either online or by post under a Scottish replacement to APD?

	Yes	No	No response	TOTAL
Airlines and airline representatives	9		3	12
Airports and airport representatives			8	8
Other transport and travel organisations	2		11	13
Business, economic development and tourism organisations	2		23	25
Professional tax and accountancy organisations	1		1	2
Environmental organisations			6	6
Other organisations		1	9	10
Group respondents (Total)	14	1	61	76
Individual	9	3	72	84
TOTAL	23	4	133	160
Percentage of all respondents	14%	3%	83%	100%
Percentage of those answering question	85%	15%	-	100%

Q25: What impact, if any, will there be on your organisation in not being able to adjust for under-declarations and over-declarations in later tax returns?

9.31. Four respondents provided written comment in relation to the impact of taxpayers not being able to adjust for under or over-declarations in later tax returns (Question 25); three airlines, and one airline representative body.

9.32. Two of these four respondents suggested that the impact of the proposal for taxpayers is likely to be relatively minor. One of the airline respondents indicated that the proposal would have a minimal impact on them as an organisation, while the airline representative body suggested that the number of under or over-declaration cases occurring outwith the 12-month limit is likely to be low.

9.33. Two airline respondents expressed a different view, and suggested that the proposed change in approach to retrospective under or over-declarations could have an impact on them and other organisations. One of these respondents suggested that the proposed change could have cashflow implications, while the other noted that the capacity to adjust for under or over-declarations is important to allow taxpayers to correct for human error in tax returns.

Paying tax

Q26a: Do you agree with our proposals regarding payment methods and time limits for a Scottish replacement to APD?

Q26b: If you answered no, please explain your answer.

9.34. Question 26a asked whether respondents agreed with the Scottish Government's proposals for payment methods and time limits for the Scottish APD replacement tax. Again, relatively few respondents answered; 26 responses, 16% of all respondents. The majority of respondents answering the question agreed with these proposals; 21 respondents, around 4 in 5 of those answering the question. A further 5 respondents indicated that they disagreed with this proposal, including 4 individuals. Nearly all group respondents answering the question agreed with the proposals.

9.35. Four individual respondents provided further written comment in support of their answer at Question 26. Comments from all four related to their views on the fundamental policy of a reduction in APD, rather than the specific proposals for paying tax.

Table 9.6: Q26a Do you agree with our proposals regarding payment methods and time limits for a Scottish replacement to APD?

	Yes	No	No response	TOTAL
Airlines and airline representatives	9		3	12
Airports and airport representatives			8	8
Other transport and travel organisations	2		11	13
Business, economic development and tourism organisations	2		23	25
Professional tax and accountancy organisations	1		1	2
Environmental organisations			6	6
Other organisations		1	9	10
Group respondents (Total)	14	1	61	76
Individual	7	4	73	84
TOTAL	21	5	134	160
Percentage of all respondents	13%	3%	84%	100%
Percentage of those answering question	81%	19%	-	100%

Q27a: Do you agree with our proposals regarding claims for repayment or relief from tax?

Q27b: If you answered no, please explain your answer.

9.36. Question 27a asked whether respondents agreed with the Scottish Government's proposals regarding claims for repayment or relief from the Scottish APD replacement tax. These are different to arrangements under UK APD, and propose that taxpayers will have the right to make a claim for repayment or relief through amending their tax return (if within 12 months of the filing date) or by making a written claim (within 5 years of the filing date).

9.37. Again, relatively few respondents answered Question 27a; 26 responses, 16% of all respondents. The majority of respondents answering the question agreed with these proposals; 19 respondents, nearly three quarters of those answering the question. A further 7 respondents indicated that they disagreed with this proposal, including 5 individuals. A large majority of group respondents answering the question agreed with the proposals.

9.38. Six respondents provided further written comment in support of their answer at Question 27a. This included three individuals where comments related to views on the fundamental policy of a reduction in APD, rather than the specific proposals for repayment or relief. Of the three respondents making substantive comment on proposals at Question 27b, two were opposed to the proposals, and one supported the proposals:

• One airline/airline representative respondent was opposed to the proposals. In relation to the potential for Revenue Scotland to refuse a claim on the basis that repayment would "unjustly enrich" the taxpayer, this respondent noted that in many instances the cost of APD is borne by the taxpayer and is not recoverable through ticket fare.
• One individual respondent was opposed to the proposals, and suggested that any claims for repayment or relief should be limited to those made within 12 months of the initial filing date.
• One airline/airline representative respondent supported the proposals, but noted the importance that processes for repayment claims beyond the initial 12-month period are as efficient as possible for taxpayers, and that applications are processed and paid in a timely way. This respondent also suggested that consideration is given to permitting claims beyond the 5-year period where extenuating circumstances apply, and where the repayment amount is above a minimum threshold.

Table 9.7: Q27a Do you agree with our proposals regarding claims for repayment or relief from tax?

	Yes	No	No response	TOTAL
Airlines and airline representatives	8	1	3	12
Airports and airport representatives			8	8
Other transport and travel organisations	2		11	13
Business, economic development and tourism organisations	2		23	25
Professional tax and accountancy organisations	1		1	2
Environmental organisations			6	6
Other organisations		1	9	10
Group respondents (Total)	13	2	61	76
Individual	6	5	73	84
TOTAL	19	7	134	160
Percentage of all respondents	12%	4%	84%	100%
Percentage of those answering question	73%	27%	-	100%