Increasing income tax divergence between Scotland and the rest of the UK underscores the need for HMRC to maintain accurate, reliable and up to date information on the tax residence status of Scottish taxpayers, tax professionals have said.
The Chartered Institute of Taxation (CIOT) and Association of Taxation Technicians (ATT) were responding to the publication today (Tuesday 14 November) of the National Audit Office (NAO) report, The administration of the Scottish rate of Income Tax 2016-17.
The report acknowledged the “significant work” undertaken by HMRC to identify and address issues identifying Scottish taxpayers but warned that maintaining accurate records of taxpayers’ addresses represented “the biggest challenge facing HMRC”.
With income tax rates expected to diverge further from the rest of the UK next year, the report also warned that the potential for avoidance or evasion could increase, further underscoring the need for HMRC to have reliable and accurate address data.
Commenting on the report, Moira Kelly, chair of the CIOT’s Scottish Technical Committee, said:
“If, as expected, Scottish income tax rates and bands diverge further from those across the rest of the UK, HMRC will need to ensure that it maintains accurate and up to date records of those taxpayers who are eligible to pay Scottish income tax and those who are eligible for income tax at existing UK rates.
“HMRC appears to have made good progress in identifying Scottish taxpayers but it needs to make sure that it maintains reliable data so that the Scottish Government receives the tax receipts that it is due in future years.
“In cases where someone is wrongly identified as being either a Scottish or a UK taxpayer, they may end up paying more or less tax than they are required to, which could result in a potential loss of revenue for the Scottish Government.
“HMRC will also have an important enforcement role to play given the potential for further income tax changes to drive behavioural responses. For example, some self-employed taxpayers may choose to incorporate their business, shifting their liabilities from Scottish income tax to UK-wide corporation and dividend tax.”
Yvette Nunn, Co-chair of ATT’s Technical Steering Group, added:
“While HMRC has been making progress on identifying Scottish taxpayers, focusing purely on a taxpayer’s address does not necessarily result in the correct outcome.
“Scottish tax residence is determined by a specific set of tests, and the ATT have previously highlighted cases where individuals, tax resident overseas, have been misclassified as Scottish taxpayers because they are using a Scottish address for correspondence1.”
Notes for editors
1. For a person to be liable to pay Scottish income tax, they must first be UK tax resident under the Statutory Residence Test (SRT). If a person is not UK tax resident under the SRT, they cannot be a Scottish taxpayer. If they have any UK source income that is liable for tax (for example rental income), they pay tax on that income at UK rates and bands. This applies even if the source of income is Scottish but they are non-resident in the UK.
2. 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.
3. The Association of Taxation Technicians (ATT)
The Association is a charity and the leading professional body for those providing UK tax compliance services. Our primary charitable objective is to promote education and the study of tax administration and practice. One of our key aims is to provide an appropriate qualification for individuals who undertake tax compliance work. Drawing on our members' practical experience and knowledge, we contribute to consultations on the development of the UK tax system and seek to ensure that, for the general public, it is workable and as fair as possible.
Our members are qualified by examination and practical experience. They commit to the highest standards of professional conduct and ensure that their tax knowledge is constantly kept up to date. Members may be found in private practice, commerce and industry, government and academia.
The Association has over 8,000 members and Fellows together with over 5,600 students. Members and Fellows use the practising title of 'Taxation Technician' or ‘Taxation Technician (Fellow)’ and the designatory letters 'ATT' and 'ATT (Fellow)' respectively.
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