Examining recent developments for Scotland, Wales and Northern Ireland
The Smith Commission published its report on the final package of new devolved powers agreed by the Scottish political parties on 26 November 2014, with the UK government to publish draft clauses by 25 January 2015 for their implementation. The report recommends that:
Lord Smith, delivering his report, said: ‘These new powers will deliver a stronger Parliament, a more accountable Parliament and a more autonomous Parliament. The recommendations, agreed between the parties, will result in the biggest transfer of powers to the Parliament since its establishment.’
Moira Kelly, chair of the CIOT’s Scottish technical committee, said the Smith report contained ‘a pragmatic set of proposals which shows a lot of thought has been given to balancing the desire of Scots for greater tax powers against the practical obstacles to devolution in many areas’.
She added: ‘It is important that the implementation of the proposals is not rushed. Income tax always looked the most obvious candidate for further devolution. It is our biggest revenue raiser, generating about a quarter of all tax receipts across the UK. The Scottish Parliament already has some income tax powers, and further changes will come in in April 2016, when the Scottish Parliament gets the power to raise or lower rates by up to 10p in the pound, but only in lock step, moving all three current rates by the same amount.
‘These proposals go much further. Not only will the Scottish Parliament be able to vary the three rates independently; they will be able to introduce new rates, abolish rates and move the thresholds where you start paying a different rate. This will give the Scottish government a lot more options. Restricting devolution to rates and thresholds, while keeping powers over tax reliefs and definitions of income at Westminster, will transfer substantial budgetary powers, while maintaining a common tax base across the UK. This will keep additional complexity to a minimum ... It is important that there is transparency on how the devolution of additional powers will interact with the Barnett formula which will otherwise be retained. We support Lord Smith’s recommendation that the addition of new responsibilities over taxes and other areas should be accompanied by the strengthening of the Scottish Parliament’s oversight of government. The Scottish government has so far been a model of effective consultation on tax matters, but more detailed powers will need more detailed scrutiny.’
Not everyone was so welcoming, however. Frank Nash, senior tax partner at Blick Rothenberg, said: ‘The problem is that the Scottish government will not only have to put in place new tax administration processes which they will have to fund themselves, but they will also now receive a bill from the Treasury to cover the costs of introducing the Scottish tax and devolved benefits. This is all going to affect their bottom line and lead to high uncertainty both from a personal and business tax perspective.’
His colleague, VAT partner Alan Pearce, added: ‘Despite reports, there are no significant VAT changes (as devolved powers are not allowed under EU legislation) other than the ability of the Scottish Parliament to retain some of the VAT revenues raised in Scotland. Most reports are saying that 50% of VAT raised in Scotland will be retained [but] it’s not quite that simple. The report confirms that Scotland can retain the first 10 percentage points of the standard rate (which currently does equate to 50%), but if Westminster decides the raise the rate above 20%, under the current proposals, none of the extra revenue raised would go to Scotland. There is no mention of the reduced rate so it appears that any VAT raised at 5% will be fully retained by the UK government.
‘There is an interesting logistical issue here. Where a VAT-registered entity has businesses north and south of the border and remits its VAT receipts under a single registration, how would the amounts of VAT raised in Scotland be identified? This could result in additional administration for businesses that have operations in Scotland and elsewhere in the UK.’
Some commentators have suggested that Scotland’s new powers would inevitably lead to an increase in the top rate of income tax. In the Financial Times (2 December), economist John Kay suggested that the pressure to do something would be hard to resist. ‘There is only one way in which the Scottish government’s new freedom to vary income tax can be exercised, and that is to raise it,’ Kay wrote. ‘That was not what the supporters of more devolution had in mind when they asked for additional powers.’
The chancellor has confirmed that full devolution of business rates to Wales will be operational by April 2015. This announcement follows the completion of the House of Lords stages of the Wales Bill 2013/14 to 2014/15, which includes provisions that will:
After the amendments made by the House of Lords to s 13 of the Bill (concerning the mechanisms for running a referendum about whether the income tax provisions in the Bill should come into force) have been considered by the House of Commons, it is anticipated that the Bill will receive royal assent early in the new year.
As announced in the Autumn Statement, the corporation tax rate-setting powers could be devolved to Northern Ireland, ‘provided that the Northern Ireland Executive is able to manage the financial implications’. The government intends to introduce legislation before the general election, subject to satisfactory cross-party discussions.
CIOT tax policy director Patrick Stevens said the announcement ‘fires the starting gun for tax competition for business within the UK. It is sure to lead to calls from Scotland and Wales, and perhaps the regions of England, for similar powers. The problem for cross-border businesses is the more that rates change and systems are varied, the less the benefits of a single UK tax regime are sustained. For British businesses, operating in Northern Ireland will become the equivalent of doing business in another country, with the additional bureaucratic hurdles that entails.
Examining recent developments for Scotland, Wales and Northern Ireland
The Smith Commission published its report on the final package of new devolved powers agreed by the Scottish political parties on 26 November 2014, with the UK government to publish draft clauses by 25 January 2015 for their implementation. The report recommends that:
Lord Smith, delivering his report, said: ‘These new powers will deliver a stronger Parliament, a more accountable Parliament and a more autonomous Parliament. The recommendations, agreed between the parties, will result in the biggest transfer of powers to the Parliament since its establishment.’
Moira Kelly, chair of the CIOT’s Scottish technical committee, said the Smith report contained ‘a pragmatic set of proposals which shows a lot of thought has been given to balancing the desire of Scots for greater tax powers against the practical obstacles to devolution in many areas’.
She added: ‘It is important that the implementation of the proposals is not rushed. Income tax always looked the most obvious candidate for further devolution. It is our biggest revenue raiser, generating about a quarter of all tax receipts across the UK. The Scottish Parliament already has some income tax powers, and further changes will come in in April 2016, when the Scottish Parliament gets the power to raise or lower rates by up to 10p in the pound, but only in lock step, moving all three current rates by the same amount.
‘These proposals go much further. Not only will the Scottish Parliament be able to vary the three rates independently; they will be able to introduce new rates, abolish rates and move the thresholds where you start paying a different rate. This will give the Scottish government a lot more options. Restricting devolution to rates and thresholds, while keeping powers over tax reliefs and definitions of income at Westminster, will transfer substantial budgetary powers, while maintaining a common tax base across the UK. This will keep additional complexity to a minimum ... It is important that there is transparency on how the devolution of additional powers will interact with the Barnett formula which will otherwise be retained. We support Lord Smith’s recommendation that the addition of new responsibilities over taxes and other areas should be accompanied by the strengthening of the Scottish Parliament’s oversight of government. The Scottish government has so far been a model of effective consultation on tax matters, but more detailed powers will need more detailed scrutiny.’
Not everyone was so welcoming, however. Frank Nash, senior tax partner at Blick Rothenberg, said: ‘The problem is that the Scottish government will not only have to put in place new tax administration processes which they will have to fund themselves, but they will also now receive a bill from the Treasury to cover the costs of introducing the Scottish tax and devolved benefits. This is all going to affect their bottom line and lead to high uncertainty both from a personal and business tax perspective.’
His colleague, VAT partner Alan Pearce, added: ‘Despite reports, there are no significant VAT changes (as devolved powers are not allowed under EU legislation) other than the ability of the Scottish Parliament to retain some of the VAT revenues raised in Scotland. Most reports are saying that 50% of VAT raised in Scotland will be retained [but] it’s not quite that simple. The report confirms that Scotland can retain the first 10 percentage points of the standard rate (which currently does equate to 50%), but if Westminster decides the raise the rate above 20%, under the current proposals, none of the extra revenue raised would go to Scotland. There is no mention of the reduced rate so it appears that any VAT raised at 5% will be fully retained by the UK government.
‘There is an interesting logistical issue here. Where a VAT-registered entity has businesses north and south of the border and remits its VAT receipts under a single registration, how would the amounts of VAT raised in Scotland be identified? This could result in additional administration for businesses that have operations in Scotland and elsewhere in the UK.’
Some commentators have suggested that Scotland’s new powers would inevitably lead to an increase in the top rate of income tax. In the Financial Times (2 December), economist John Kay suggested that the pressure to do something would be hard to resist. ‘There is only one way in which the Scottish government’s new freedom to vary income tax can be exercised, and that is to raise it,’ Kay wrote. ‘That was not what the supporters of more devolution had in mind when they asked for additional powers.’
The chancellor has confirmed that full devolution of business rates to Wales will be operational by April 2015. This announcement follows the completion of the House of Lords stages of the Wales Bill 2013/14 to 2014/15, which includes provisions that will:
After the amendments made by the House of Lords to s 13 of the Bill (concerning the mechanisms for running a referendum about whether the income tax provisions in the Bill should come into force) have been considered by the House of Commons, it is anticipated that the Bill will receive royal assent early in the new year.
As announced in the Autumn Statement, the corporation tax rate-setting powers could be devolved to Northern Ireland, ‘provided that the Northern Ireland Executive is able to manage the financial implications’. The government intends to introduce legislation before the general election, subject to satisfactory cross-party discussions.
CIOT tax policy director Patrick Stevens said the announcement ‘fires the starting gun for tax competition for business within the UK. It is sure to lead to calls from Scotland and Wales, and perhaps the regions of England, for similar powers. The problem for cross-border businesses is the more that rates change and systems are varied, the less the benefits of a single UK tax regime are sustained. For British businesses, operating in Northern Ireland will become the equivalent of doing business in another country, with the additional bureaucratic hurdles that entails.
