Scotland Act 2016 implementation: eighth annual report

4. VAT Assignment

The Scotland Act 2016 provided for the first 10 pence of the Standard Rate of Value Added Tax (VAT), and the first 2.5 pence of the Reduced Rate, to be assigned to the Scottish Government. VAT rates will continue to be set at a UK-wide level.

Costs

Table 4.1: Implementation and Administrative Costs

£m	2021-22	2022-23	2023-24
Implementation	0.4	0.3	0.4
Administration/Operation	-	-	-

32. As part of the Fiscal Framework agreement, the Scottish and UK Governments agreed to share equally all costs incurred as a result of the implementation and administration of VAT assignment. In 2023-24, total costs incurred by HMRC and the Scottish Government were £0.3 million.

2023-24 Developments

33. The Scottish and UK Governments had previously agreed to address the implementation of VAT assignment as part of the 2023 Fiscal Framework review (FFR). During review negotiations, both Governments agreed that more extensive discussions on VAT assignment were required and, to avoid any delays in the agreement on the revised Fiscal Framework, it was agreed that the next steps around VAT assignment would be discussed at a later date.

34. Data on VAT assignment, up to 2021, was published by HMRC on 28 September 2023^[12]

Future plans

35. Consideration of when and how to implement VAT Assignment will be moved to a future meeting of the HMT/SG Joint Exchequer Committee (JEC).

Scottish VAT Assignment Forecasts

36. The Scottish Fiscal Commission (SFC) produces illustrative forecasts of the VAT that will be assigned to Scotland. Their latest forecast of VAT revenue assigned to Scotland was published in December 2023^[13].

37. This forecast has no impact on the Scottish Government's budget as this is a transitional period, where VAT assignment will be forecast and calculated, but not applied to the budget.