Sixth Annual Report on the Implementation of the Scotland Act 2016: Tenth Annual Report on the Implementation and Operation of Part 3 (Financial Provisions) of the Scotland Act 2012
Report to inform parliament of the implementation work that has been carried out on fiscal powers as required by Section 33 of the Scotland Act 2012 and paragraph 107 of the Fiscal Framework.
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 the Scottish Rate Resolution.
Costs
| £m | 2019-20 | 2020-21 | 2021-22 (forecast) |
|---|---|---|---|
| Implementation | 0.6 | 0.0 | 0.0 |
| Administration/Operation | 0.9 | 0.7 | 0.6 |
Move to normal running costs
29. Her Majesty's Revenue and Customs (HMRC) completed the implementation work to deliver Scottish Income Tax during 2019-20, and the costs for the last two years have reduced, reflecting the move to a business as usual setting for Scottish Income Tax.
30. HMRC estimates the overall cost charged to the Scottish Government for implementing Scottish Income Tax powers, from the Scotland Act 2012 and Scotland Act 2016, to be £24.3 million. The costs of altering systems and processes in the future, for example to accommodate changes to rates and thresholds, will be recharged to the Scottish Government.
31. Final figures for 2021-22 were not available at the date of publication. For the financial year 2021-22 to quarter three, the Scottish Government has been invoiced running costs of £418,000 for the administration of Scottish Income Tax. HMRC has forecast a total cost for 2021-22 of £0.6 million.
Assurance from National Audit Office and Audit Scotland
32. The National Audit Office (NAO) published its report[7] on the administration of Scottish Income Tax 2020-21 on 14 January 2022. The report stated that "HMRC has adequate rules and procedures in place to ensure the proper assessment and collection of Scottish income tax and that those rules are being complied with". Audit Scotland reviewed this approach taken by the NAO, and endorsed its findings in their own report[8], also published on 14 January 2022.
Scottish Taxpayer Identification
33. HMRC estimates that there are around 2.5 million Scottish taxpayers in 2020-21. Scottish Government and HMRC agree on the importance of the correct identification of Scottish taxpayers to enable successful implementation of Scottish Income Tax powers. HMRC undertakes regular assurance activity on its customer data to ensure that its identification of the Scottish taxpayer population is as accurate as possible.
34. In 2021, HMRC undertook an exercise to match their Scottish taxpayer records to a third party data source (known as a 'data clash'). The aim was to test whether HMRC's identification of Scottish taxpayers was corroborated by other sources. HMRC's analysis of the results of this exercise suggests that their identification of Scottish taxpayers is correct in 98-99 per cent of cases. HMRC undertakes the data clash exercise every two years and will next do so in 2023-2024.
Outturn Data
35. HMRC published the 'Scottish Income Tax Outturn Statistics: 2019 to 2020'[9] in July 2021, showing that receipts from Scottish Income Tax were £11.8 billion in 2019-20. These figures were initially published on a provisional basis but were formally signed off after the NAO had completed their annual audit of HMRC's Annual Report and Accounts, and Trust Statement in November 2021. This was the second publication of outturn data that included receipts from the five band Scottish Income Tax System implemented in 2018-19.
Rates
36. Scottish Income Tax rates and bands for 2021-22 are as follows[10]:
| Scottish Income Tax Bands | Name | Rate |
|---|---|---|
| £12,571*- £14,667 | Starter Rate | 19% |
| £14,668 - £25,296 | Scottish Basic Rate | 20% |
| £25,297 - £43,662 | Intermediate Rate | 21% |
| £43,663 - £150,000** | Higher Rate | 41% |
| Above £150,000** | Top Rate | 46% |
*Assumes individuals are in receipt of the Standard UK Personal Allowance.
**Those earning more than £100,000 will see their Personal Allowance reduced by £1 for every £2 earned over £100,000.
37. A Scottish Rate Resolution setting the Scottish Income Tax rates and bands for 2022-23[11] was approved by MSPs on 2 February 2022. The rates and bands are detailed in Table 3.3.
| Scottish Income Tax Bands | Name | Rate |
|---|---|---|
| £12,571* – £14,732 | Starter Rate | 19% |
| £14,733 - £25,688 | Scottish Basic Rate | 20% |
| £25,689 - £43,662 | Intermediate Rate | 21% |
| £43,663 - £150,000** | Higher Rate | 41% |
| Above £150,000** | Top Rate | 46% |
*Assumes individuals are in receipt of the Standard UK Personal Allowance.
**Those earning more than £100,000 will see their Personal Allowance reduced by £1 for every £2 earned over £100,000.
Contact
Email: rebecca.mcewan@gov.scot
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