Air Departure Tax Administration Regulations: business and regulatory impact assessment

Section 1: Background, aims and options

1.1 Background to policy area

APD came into effect on 1 November 1994. APD is paid by airlines and aircraft operators and levied on a per passenger basis. The rate of duty varies according to passenger destination and the class of passenger travel.

The Scotland Act 2016 provided the Scottish Parliament with the legislative competence to introduce a devolved replacement for APD in Scotland, which it exercised in passing the Air Departure Tax (Scotland) Act 2017 (“the 2017 Act”). When introduced, Revenue Scotland, as Scotland's tax authority for devolved taxes, will be responsible for the collection and management of ADT.

ADT will apply to the carriage of chargeable passengers on chargeable aircraft on flights departing from Scottish airports. It will be paid by airlines and other aircraft operators and is chargeable on a per passenger basis. ADT will follow a band structure with rates varying by destination and by class of travel. ADT rates for the 2027-28 financial year are set out below.

The purpose of the Regulations is to enable the effective administration of ADT by Revenue Scotland

1.2 Current Position – before proposed changes

The ADT Act received Royal Assent on 25 July 2017 and the original planned introduction date for ADT was 1 April 2018. However, the Scottish Government identified concerns around the existing APD Highlands and Islands exemption’s compliance with European Commission State Aid rules and deferred the introduction of the tax until a solution could be reached. On 4 January 2023, following the UK’s exit from the European Union, the Subsidy Control Act 2022 replaced European Commission State Aid rules within the UK.

The Scottish Government has set an introduction date of 1 April 2027 for ADT and (subject to the relevant secondary legislation successfully completing the Parliamentary process) will include a new subsidy compliant tax exemption for the carriage of passengers on certain flights to and from airports in the Highlands and Islands region (where the conditions to qualify for the exemption are met).

This assessment considers the business impacts associated with the introduction of secondary legislation amending the ADT Act to set out additional ADT administration requirements for taxpayers and wider legislative changes to ensure that ADT can be introduced on 1 April 2027.

1.3 Types of Business, Economic Sector, Groups or Communities that could be affected by the issue and its proposed solution.

The Administration Regulations will affect all airlines and aircraft operators who, from 1 April 2027 onwards, carry chargeable passengers on flights on chargeable aircraft which begin at an airport in Scotland, insofar as they will be required to register for the new devolved tax.

To improve the data on the Scottish aviation sector and passenger numbers, the Scottish Government has undertaken procurement for further data sources to undertake analysis to support the development of future policy options.