Plans to introduce devolved tax powers for Wales are likely to come into force later this year, giving the Welsh control of a share of the nation’s £4.5bn annual tax take
The Welsh Assembly is likely to have control of 10% of the total income tax rate mirroring the Scottish Rate of Income Tax (SRIT) when the Wales Bill is passed. The tax will be collected by HMRC and there will be an estimated £2m to 5m bill to run the system each year.
According to the latest available HMRC data, of the £163bn collected across the UK, more than £4.5bn of income tax is raised in Wales on an annual basis, from around 1.4m Welsh taxpayers. In 2014-15 £163m of income tax was collected in the UK compared to £4.8m in Wales.
The Silk Commission highlighted a number of benefits of transferring an element of income tax. It found that 64% favoured income tax devolution, with 33% against. The commission’s main findings was that a majority believed if income tax powers were delegated, the Welsh government would work harder to increase revenues and help the Welsh economy to grow.
The cost of implementing the Welsh rate of income tax is difficult to estimate given the uncertain timeframe for delivery but is likely to be in the range £10m-£15m with annual running costs in the range of £2m - £5m.
The costs are lower than for the equivalent change in Scotland when the Scottish Rate of Income Tax (SRIT) was introduced earlier this year, largely because the lower population in Wales means there will be less contact from customers.
However, additional costs could arise if HMRC has to expand the capacity of its Welsh language helpline to support its customers and handle specific questions. These estimates have been produced on the basis of HMRC’s 2015-16 operating models and IT systems. The move to digital tax accounts should eliminate some of the requirements for call centre support.
The second reading of the Bill will take place later this month and is expected to complete its passage through parliament this session.