HMRC set to collect £11.9bn in Scottish income tax

HMRC estimates Scottish rate of income tax revenue (SRIT) for 2017-18 will be £11.9bn, reflecting the more comprehensive tax setting powers available, and has implemented assurance processes to ensure collection, the annual National Audit Office (NAO) review has found

In its report the audit watchdog stated that HMRC’s calculation for SRIT revenue in 2016-17 is fairly stated. HMRC calculated the final figure as £4.35bn, 5% lower than the original estimate of £4.56bn.

The increase predicted for 2017-18 reflects the more comprehensive powers granted by the Scotland Act 2016 which became effective from 2017-18 onwards. These powers allow Scotland to set its own rates and bands for non-saving non-dividend income and retain all income tax raised from Scotland, not just a proportion.

In 2017-18, income tax rules in Scotland differed from the rest of the UK for the first time. HMRC will continue to administer and collect Scottish income tax as part of the UK tax system. The NAO report states HMRC has implemented several assurance processes to maintain the completeness and accuracy of the estimated 2.53m Scottish taxpayer population, but identifies this as a key challenge facing HMRC in ensuring that Scottish income tax is assessed and collected properly.

In 2017-18 HMRC incurred and recharged £4.8m of costs on the three Scottish income tax projects, of which £300,000 was running costs, which the NAO concludes is fair under the agreement with the Scottish government.

HMRC has confirmed that it will refine its estimation methodology to incorporate the new information that it has about taxpayers in Scotland.

Separate research from the think tank IPPR has looked at the future impact of the Scottish government’s decision not to increase the higher rate tax threshold  in line with the rest of the UK.

For 2017/18  it held the higher rate tax threshold, while for   2018/19, it introduced two new income tax bands, and increased i tax rates for higher and additional rate tax payers.

At last month’s UK budget, the Chancellor announced the higher rate income tax threshold is set to rise to £50,000 from April 2019.

IPPR  analysis shows that the costs of matching in Scotland the UK government’s decision could be significant, at a cost of £280m in 2019/20, and £1.06bn in real terms (2018/19 prices) between 2019/20 and 2022/23 (the last year of the forthcoming spending review).

The think tank says this could have a significant impact on public spending in Scotland, particularly if the costs for this tax cut were to be found in reductions in spending among non-protected departments (those outside of health, police and social security). A reduction in spending for non-protected departments worth £280m, would amount to a reduction in spending of 2% in non-protected departments in Scotland.

Administration of Scottish Income Tax 2017-18 is here.

Report by Pat Sweet

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