Scotland Act 2016 implementation: eighth annual report

3. Scottish Income Tax

Since 6 April 2017, the Scottish Parliament has had the power to set the Income Tax rates and bands applicable to Scottish taxpayers on their non-savings and non-dividend income, but powers over the personal allowance and savings and dividend income are reserved to the UK. The rates and bands are set each year by a parliamentary motion known as a Scottish Rate Resolution.

Costs

2023-24 Developments

Move to business-as-usual administration costs

23. His Majesty’s Revenue and Customs (HMRC) completed the majority of the implementation work to deliver Scottish Income Tax by 2019-20, and therefore there are no implementation costs for the last three years reflecting the move to a business as usual delivering of Scottish Income Tax.

24. HMRC estimate the total costs charged to the Scottish Government for implementing the Scottish Income Tax powers from the Scotland Act 2012 and Scotland Act 2016 to be £24.3 million during the period 2012-13 to 2019-20.

25. For the financial year 2023-24, the Scottish Government has been forecast to incur costs of £0.6 million for the administration of Scottish Income Tax. Separate to funding the business as usual administration of Scottish Income Tax, the Scottish Government will also incur costs to implement the new Advanced rate band in 2024-25. These will be reported in future versions of this report.

Assurance from National Audit Office and Audit Scotland

26. The National Audit Office (NAO) published its report^[8] on the administration of Scottish Income Tax 2022-23 on 19 January 2024. The report stated that "HMRC has adequate rules and procedures in place to ensure the proper assessment and collection of Scottish income tax and it is complying with those rules". Audit Scotland reviewed the approach taken by the NAO, as requested by the Scottish Parliament when Income Tax powers were devolved, and endorsed the NAO findings in their own report^[9] also published on 19 January 2024.

Scottish Taxpayer Identification

27. HMRC estimate that there were around 2.67 million Scottish taxpayers in 2021-22. Scottish Government and HMRC agree on the importance of the correct identification of Scottish taxpayers to enable the successful implementation of Scottish Income Tax powers. HMRC undertake regular address assurance activity on its customer data to ensure that its identification of the Scottish taxpayer population is as accurate as possible.

28. In 2023, HMRC undertook an exercise to match their Scottish taxpayer records to a third party data source (known as a ‘data clash’). The aim of this exercise is to test whether HMRC's identification of Scottish taxpayers is corroborated by other data sources. HMRC's analysis of the results show that their identification of Scottish taxpayers is correct in 99 per cent of cases^[10].

Outturn Data

29. HMRC published the 'Scottish Income Tax Outturn Statistics: 2021 to 2022^[11] in July 2023. This showed that receipts from Scottish Income Tax were £13.7 billion in 2021-22.

30. These figures were formally signed off after the NAO had completed their annual audit of HMRC Annual Report and Accounts, and Trust Statement in July 2023. This was the fourth publication of outturn data that included receipts from the five band Scottish Income Tax System implemented in 2018-19.

Future plans

31. We will continue to work with HMRC to oversee the effective delivery of the new Advanced rate band and its incorporation into business as usual. We will also undertake further engagement with tax professionals and other stakeholders to identify areas of continuous improvement in the administration of Scottish Income Tax.