Scottish Income Tax operation by HMRC: service level agreement

Introduction

Purpose

1. The Scottish Parliament has been provided with increased rate-setting powers in Scotland Acts 2012 and 2016. However, Scottish Income Tax (‘SIT’) remains part of the UK Income Tax system: it continues to be administered by Her Majesty’s Revenue and Customs (HMRC); and, responsibility for the Personal Allowance, the tax base and tax reliefs remain reserved to the UK Parliament.

2. Forecast SIT receipts flow from HM Treasury into the Scottish Government’s Consolidated Fund. This amount is reconciled annually against the amount of income tax that HMRC collects.

3. HMRC remains accountable for the collection and management of SIT and need to be able to evidence that they are doing so in an efficient and effective manner.

4. The Scottish Government is required to meet any net additional costs incurred by HMRC as a result of the introduction of SIT.

5. The Scottish Government needs sufficient data from HMRC to:

• discharge its duties in respect of: forecasting, developing income tax policy, setting rates; and budgeting for any variance in SIT collected against forecasts
• assure itself of HMRC’s efficiency and effectiveness in operating SIT

6. This Service Level Agreement (the ‘Agreement’) sets down the requirements and performance measures for the operation of SIT which will ensure a consistent quality of service to Scottish taxpayers and allow HMRC and the Scottish Government to meet their respective responsibilities in respect of operating SIT.

7. HMRC is committed to the continuous improvement of its operation of SIT. HMRC will, in line with its practices, ensure that improvements to its processes and procedures for operating SIT are implemented where possible and cost effective.

Roles and responsibilities

8. HMRC is responsible for the collection and management of the revenues from income tax by virtue of section 5(1)(a) of the Commissioners for Revenue and Customs Act 2005. HMRC has appointed an Additional Accounting officer with the overall responsibility for SIT powers who is accountable for the performance of HMRC in establishing and operating SIT powers.

9. Part 3 of the Scotland Act 2012 provided the Scottish Parliament with the power to set the Scottish Rate of Income Tax (SRIT), which allows the Scottish Parliament to set a rate for a proportion of the income tax paid by Scottish taxpayers. The Scotland Act 2012, section 25 (Appointed Years) Order 2015 determined that the tax year 2016 to 2017 was the first year to which SRIT would have effect.

10. Part 2 of the Scotland Act 2016 provides the Scottish Parliament with the power to set the rates and band thresholds (excluding the personal allowance) that will apply to all non-savings non-dividend income tax paid by Scottish taxpayers. The Scotland Act 2016 (Commencement No 2) Regulations 2016 determined that the tax year 2017 to 2018 was the first year to which SIT powers would have effect.

11. Each year the Scottish Parliament must pass a Scottish Rate Resolution which will set the income tax rates and bands to be applied for Scottish taxpayers. This must be passed prior to the start of the tax year in which the rates are due to apply.

12. The ability to change, add or remove income tax reliefs remains reserved to the UK Parliament.

13. The ability to define, change, add or remove types of income to which income tax can be applied remains reserved to the UK Parliament.

14. Any issues of dispute about the administration of SIT will be matters between Scottish taxpayers and HMRC.

15. Additionally, under the Fiscal Framework agreed between the UK and Scottish Governments in 2016, the Scottish Government is required to reimburse the UK government for net additional costs wholly and necessarily incurred as a result of the administration of the SIT powers.

16. HMRC administers SIT on behalf of the Scottish Government. It remains responsible for the preservation of customer data relating to SIT customers in line with its usual processes.

17. To that end, HMRC also retains responsibility as the ‘Data Controller’ for SIT and adherence to wider data protection law, including the General Data Protection Regulation (GDPR) and the Data Protection Act (DPA) 2018, in line with its own organisational Privacy Notice.