Opinion Former Article

Complexity the price to pay in devolved tax trade off

Tax professionals have cautioned that plans to restructure Scottish income tax will introduce additional complexities for Scottish taxpayers, while warning that today’s measures should not be considered in isolation from the wider UK tax and benefits regime.

The Chartered Institute of Taxation (CIOT) was responding to the publication today (14 December) of the Scottish Government’s draft budget for 2018/19.

The Institute warned that the proposals could see some middle-income earners paying a higher marginal rate of tax and National Insurance (NI) than those on higher incomes because of the misalignment between income tax and the Upper Earnings Limit (UEL) of National Insurance contributions1.

Furthermore, the CIOT said that the decision to introduce a new ‘starter’ rate of tax could pose complications for some people in receipt of benefits, while noting that the creation of an ‘intermediate’ rate could have implications for people in receipt of Marriage Allowance2.

Moira Kelly, chair of the CIOT Scottish Technical Committee, said:

“Complexity is the price Scots will pay for exercising our devolved powers over income tax.  Today’s announcement underlines the increasingly diverging nature of income tax between Scotland and the rest of the UK.

“But even if a political agreement can be reached by Scotland’s political parties on the way forward, introducing new rates and bands of income tax cannot be considered in isolation from the wider UK regime.

“We are concerned that today’s proposals have the potential to increase both the costs and complexity of administering Scottish income tax as well as throwing into the mix some interesting anomalies.

“The options set out could – for example – see someone earning between £44,274 and £46,350 per year paying a marginal rate of tax of 53% (income tax and national insurance) compared with a lower marginal rate of 43% for those earning between £46,351 and £100,000.

“Introducing a new ‘intermediate’ rate raises questions on the eligibility of certain Scottish taxpayers currently receiving Marriage Allowance because they pay the basic rate of income tax but who, from next April, will pay the new 21p rate. This could see Scottish taxpayers earning more than £24,000 being unable to claim this allowance.

“And of course, we can’t rule out that an increase in the higher rate of income tax will prompt some who are able to – such as self-employed businesses – to opt out of Scottish income tax in favour of a lower UK wide rate of corporation tax.

“The nature of our tax system already makes it very difficult to educate the public over what they pay and when they pay it without introducing additional complexities.

“Moving forward, this debate needs to be more than just what Scottish income tax we will pay and when, but also how this interacts with the wider UK tax regime.”


Notes for editors

1.       Upper Earnings Limit for NIC is aligned with the UK higher rate threshold for income tax. The rate of Class 1 NIC between the primary threshold and upper earnings limit is 12%. Above the upper earnings limit National Insurance is payable at a rate of only 2%.

The Scottish Parliament has the power to set rates and bands of income tax for non-savings and non-dividend income (such as rental profits, pensions or salaries). It has no control over income tax on savings income or dividends, nor does it decide who and what can be taxed (the tax base) or set the tax-free personal allowance. Similarly, taxes such as National Insurance, Capital Gains Tax (CGT) and Corporation Tax are fully reserved to the UK Parliament.

2.       Marriage Allowance is restricted to couples where the higher earner does not pay tax at a rate higher than the basic rate of income tax.
3.       The Chartered Institute of Taxation (CIOT)

The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.

The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.

The CIOT’s 18,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.

Contact: Chris Young, External Relations Officer, 07900 241 584; cyoung@ciot.org.uk

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