Income tax outturn reconciliation 2020-2021: joint statement with HM Treasury

A joint statement from the Scottish Government and HM Treasury setting out the income tax reconciliation process and detailing the 2020-21 income tax reconciliation.

This statement, jointly agreed by HM Treasury and the Scottish Government, shows both governments’ continued ambition to ensure full transparency in, and to improve wider understanding of, the Fiscal Framework and specifically the reconciliation process. This is in line with recommendations by stakeholders, including those given by the Scottish Parliament’s previous Finance and Constitution Committee. Please see the Committee’s Pre-Budget Scrutiny Report 2020-21 for further details . 

Reconciliation for 2020-21 Income Tax

Today, HMRC published Income Tax outturn statistics for the tax year 2020-21

The publication provides the figures for both Scottish Income Tax revenues, and the equivalent Income Tax revenues for the rest of UK that are used to calculate the Scottish Government’s Income Tax Block Grant Adjustment, as set out in the Fiscal Framework agreed between the Scottish and UK Governments. This allows the Income Tax reconciliation applying to the 2023-24 Scottish Government budget to be calculated.

Calculating the reconciliation requires comparing the forecast and outturn figures for Scottish Income Tax revenues and for the Block Grant Adjustment for the year 2020-21. The difference between the forecasts and the outturns is applied to the Scottish Government’s Budget and funding in 2023-24. Further background is set out below, after the calculations.

The two reconciliation components will have the following effects, as summarised in the table below:

  • Block Grant Adjustment: The outturn is lower than was forecast at the time of the 2020-21 Scottish Budget so this will reduce the Block Grant Adjustment (and by implication increase the Scottish Government’s block grant) by £468m in 2023-24
  • Scottish Income Tax: The outturn is lower than was forecast at the time of the 2020-21 Scottish Budget so this will reduce Scottish Government self-funding by £417m in 2023-24

The net reconciliation effect is a £50m increase in the Scottish Government’s funding for 2023-24. 

Reconciliation for 2020-21 Income Tax which will impact the 2023-24 Budget

2020-21 Income Tax (£m) Revenues Block Grant Adjustment Net Budget Position    
Forecasts as of Scottish Government Budget 2020-21 12,365  -12,319 +46
Outturn 11,948 11,852 +96 
Change/reconciliation  -417 +468 +50  

Note – numbers may not sum due to rounding.

Revision to previous outturn years

In 2021, a minor inconsistency in the classification of some taxpayers was discovered by HMRC. These taxpayers had Scottish residency flags in HMRC’s records and were thus identified as Scottish taxpayers for the purpose of the outturn data. However, they have subsequently been identified as non-resident for tax purposes so cannot be classified as Scottish taxpayers. No taxpayers have paid the incorrect tax. The process of producing the outturn figures has been corrected for the 2020-21 outturn. The figures from the previous outturn years (2016-17 to 2019-20) have been corrected in HMRC’s 2020-21 statistical release.

This inconsistency had funding implications for the Scottish Government, whereby the Scottish Government had to manage a larger negative reconciliation in each of the years 2020-21 to 2022-23 (relating to outturn for 2017-18 to 2019-20 respectively). Use of the corrected outturn statistics would have reduced the negative reconciliation applied to the Scottish Budget by about £7m in each year. Both governments are in ongoing discussions on addressing the historic implications of this issue. Further details will be provided in the Scottish Government’s publication of its Fiscal Framework Outturn Report later this year.


The Scotland Act 2016 devolved additional tax powers to the Scottish Government. In April 2017, the Scottish Government gained the power to set the rates and bands for non-savings and non-dividends (NSND) Income Tax in Scotland. HMRC is responsible for the collection of Scottish Income Tax.

The Scottish Government is partly funded by the UK government block grant, and partly self-funded through raising revenue from devolved taxes and borrowing.

The block grant is determined by the longstanding Barnett Formula.

The block grant is now adjusted to reflect the impact of the transfer of greater fiscal powers to the Scottish Government. These Block Grant Adjustments (BGAs) are deductions for tax powers and additions for social security benefits. Alongside this, the Scottish Government retains all revenues from devolved taxes, has a Scotland Reserve and has capital and resource borrowing powers with agreed limits.

For resource borrowing, the Scottish Government has the power to borrow for the following reasons:

  • for in-year cash management, with an annual limit of £500m
  • for forecast error in relation to devolved and assigned taxes and demand-led welfare expenditure arising from forecasts of Scottish receipts/expenditure and corresponding UK forecasts for the Block Grant Adjustments, with an annual limit of £300m and
  • for any observed or forecast shortfall in devolved or assigned tax receipts or demand-led welfare expenditure incurred where there is, or is forecast to be, a Scotland-specific economic shock, with an annual limit of £600m

As a result of a Scotland-specific economic shock being triggered in 2021-22, largely driven by timing differences between the respective SFC and OBR forecasts, the Scottish Government will have the power to borrow up to £600m for a shortfall in tax receipts or increase in demand-led welfare expenditure between 2021-22 and 2023-24. 

Initially, the Scottish Government’s Income Tax revenues are forecast by the Scottish Fiscal Commission (SFC) and the Income Tax BGA is based on Office for Budget Responsibility (OBR) Income Tax forecasts for the rest of the UK. Once the forecast revenue is determined and the corresponding BGA is made, there are no changes in the Scottish Government’s funding until outturn data are available.

As set out in the Scottish Government’s Fiscal Framework, Income Tax outturn published in HMRC’s Annual Report and Accounts, which is normally published around 16 months after the end of the financial year, will then be used to determine the Scottish Government’s funding for the following financial year through a reconciliation process.

Under this process, a reconciliation for 2020-21 Income Tax will be applied to the 2023-24 Scottish Budget. The reconciliation covers both Income Tax revenues and the BGA.

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