COMPLIANCE
devolved tax (the non-savings / non- dividend part of income tax) and an ‘assigned’ tax – value added tax. As such, it was expected that Scotland’s political decisions and economic performance would influence the amount raised; and the Scottish Government would bear any potential benefit or risk relating to those amounts, while conferring greater accountability towards its citizens on to the Scottish Parliament. In 1998, when the Scottish Parliament was established, all revenues were raised by way of central UK taxation, with a proportion being permitted to be spent at local devolved level and this amount consisted of a ‘block grant’. The Barnett formula (‘Barnett’ being derived from Lord Barnett, the creator of the formula, who served as labour chief secretary to the Treasury under prime minister, James Callaghan in 1978) is a Treasury convention with no legal status, which determines how the block grant is adjusted each fiscal year. Put simply, whenever there’s a change in public services funding or a departmental budget change takes place in England, ‘Barnett’ allocates a similar amount per capita to each devolved jurisdiction. Therefore, it’s vital that as accurate-as-possible figures are maintained in relation to the movement of citizens around the UK – for Scotland, it’s estimated that around 80,000 people currently move between Scotland and England each year, for example. It’s vital to Scotland that HMRC classifies people correctly as 'Scottish taxpayers' so that the revenue raised under the banner of Scottish income tax (non-savings / non-dividend) can be allocated as fully as possible to the Scottish purse. The outturn figures of actual income tax receipts are on a two-year time lag, so yearly forecasting is estimated by the Scottish Fiscal Commission based on previous years’ outturn and current UK and Scottish budget statements. The Scottish income tax revenue forecast for 2021/22 was £13.671 million, according to the Scottish budget (2022/23). The fiscal framework is the
It's highly unlikely that such measures would ever be taken in respect of a tax bill, but the powers are nevertheless there. Unlikely, because for a national tax matter (such as income tax, for example) to be devolved to the Scottish Government in the first place, the UK Government must agree to it. If the UK Government thought that the proposal fell under (b) above, it would likely stop there. Note however, that the Scottish Government has the power to formulate legislation to raise local taxes without the UK Government’s consent – examples of this in recent times being the workplace parking licence and the transient visitor levy (a.k.a. tourist tax), which, if implemented, would be administered and collected by local authorities at their discretion. Key considerations An important question which arises with devolved taxes generally is that of transparency and accountability. ICAS produced its unique Public Finances Accountability Guide in April 2022 to discuss: l how the UK and Scottish Governments are held to account for their decisions on public finances l where the money comes from l how it’s spent and prioritised l the results of audits of public accounts. Clearly, for citizens to make educated decisions about everything from buying property, to working and paying income tax, to who to vote for in the next election, it is vital that they have clear and unequivocal factual information to rely upon which does not contain political spin. It is the responsibility of government at all levels to ensure that the public has access to this so that they can understand how it all works and are able to comply with the demands of the tax legislation and guidance. Inevitably, devolution leads to added
intergovernmental mechanism under which agreement is reached on how the block grant is configured to take account of devolved taxes and expenditure (e.g., certain social security payments). The Fiscal Framework Agreement signed between the UK and Scottish Governments (published 25 February 2016) is currently in the process of being reviewed and updated. It includes mechanisms to make ‘block grant adjustments’ to revise the amount of the block grant (usually termed ‘Barnett consequentials’), which are additional funding provisions under the UK-Scotland Fiscal Framework Agreement, whereby if a UK tax measure brings in more money, this is proportionately passed on to Scotland under the ‘no detriment’ measure. Current developments relating to Section 35 of the Scotland Act 1998 Something which has hit headlines in recent days is the retained power by the UK Government to make orders under Section 35 of the Scotland Act 1998, which can prevent a Bill passed by the Scottish Parliament from receiving Royal Assent, even though the Bill might be within the legislative competence of the Scottish Parliament. This piece of legislation had almost been forgotten about because it had never been used – but in the last week, we’ve seen it being used to prevent the Gender Recognition Reform (Scotland) Bill from passing into the statute books – something which will likely create a lot of debate and possibly even another trip to the Supreme Court. Section 35 can be used where a Bill contains provisions: (a) which the Secretary of State has reasonable grounds to believe would be incompatible with any international obligations or the interests of defence or national security, or (b) which make modifications of the law as it applies to reserved matters and which the Secretary of State has reasonable grounds to believe would have an adverse effect on the operation of the law as it applies to reserved matters.
layers of complication and opacity, and the Scottish, Welsh, NI and UK Governments must prioritise the
allocation of adequate resource to help the general public and businesses join the dots to see the full picture. n
Links corner ● Consultation on devolution of more fiscal powers: http://ow.ly/a0q550MLGbZ ● ICAS response to consultation on devolution of more fiscal powers: http://ow.ly/Xar450MLGh7 ● Breaking New Ground? Developing a Scottish Tax to Replace the UK Aggregates Levy : http://ow.ly/fKCz50MLGq9
● Gender Recognition Reform (Scotland) Bill: http://ow.ly/Ar9850MLGIs ● ICAS Public Finances Accountability Guide: http://ow.ly/RZAC50MLGUj.
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| Professional in Payroll, Pensions and Reward |
Issue 88 | March 2023
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