Scottish Rates Of Tax
The coming months will see whether the Scottish parliament will set Scottish rates of tax. An announcement is expected later this month with its introduction from April 2016.
HMRC will be writing to taxpayers who they believe to be Scottish taxpayers to advise them that with the introduction of the Scottish Rate of Income Tax (SRIT) and that their tax code will begin with a prefix “S”
There could well be an incentive for wealthy individuals to change addresses for tax planning purposes.
HMRC has presented a report to MSP’s on Holyrood’s finance committee outlining the work being done ahead of new powers coming into force.
“If the Scottish rates diverge from the rates which apply elsewhere in the UK, there will be an incentive for taxpayers to claim that they live on one side of the border, when they live on the other,” the document said before warning that the taxman would keep an eye on cross border activity.
HMRC’s report confirms:
“HMRC will use external data to highlight changes of address, and identify high-risk cases such as mobile employees and taxpayers with high incomes and will undertake appropriate compliance activity to address any risks that arise.”
“HMRC is already undertaking preparatory work in these areas. Additionally, it is worth noting that, as HMRC continues to work on reducing the overall tax gap and bring more individuals into the tax system, this will increase overall revenues, including those paid at the Scottish rate.”
The Scottish Conservative enterprise spokesman Murdo Fraser said “Whilst any attempts at tax avoidance cannot be condoned, this situation illustrates the difficulties that will be presented if the SNP were to raise taxes in Scotland higher than the rest of the UK”.
“Inevitability tax differentials will lead individuals to try and order their affairs in the most tax efficient manner”.
Interestingly, HMRC’s report estimated that, if the Scottish Parliament set different tax rates to those south of the border, there would be an additional cost to the Scottish parliament of circa £4 million.
More details from HMRC on Scottish rates of tax are available here
