Income tax outturn reconciliation 2021-2022: 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 2021-2022 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 2021-2022 Income Tax

Today, HMRC published Income Tax outturn statistics for the tax year 2021-22.                                     

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 (BGA), as set out in the Fiscal Framework agreed between the Scottish and UK Governments. This allows the Income Tax reconciliation applying to the 2024-25 Scottish Government budget to be calculated. The reconciliation is a normal part of operating the Fiscal Framework and ensures the Scottish Government’s funding is based on actual income tax revenues, rather than forecasts.

Calculating the reconciliation requires comparing the forecast and outturn figures for Scottish Income Tax revenues and for the Block Grant Adjustment for the year 2021-22. The difference between the forecasts and the outturns is applied to the Scottish Government’s Budget and funding in 2024-25. 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 higher than was forecast at the time of the 2021-22 Scottish Budget so this will increase the Block Grant Adjustment (and by implication reduce the Scottish Government’s block grant) by £1,851m in 2024-25.
  • Scottish Income Tax: The outturn is higher than was forecast at the time of the 2021-22 Scottish Budget so this will increase Scottish Government self-funding by £1,461m in 2024-25.

The net reconciliation effect is a £390m decrease in the Scottish Government’s funding for 2024-25.

Reconciliation for 2021-2022 Income Tax which will impact the 2024-2025 Budget

2021-22 Income Tax (£m)


Block Grant Adjustment

Net Budget Position

Forecasts as of Scottish Government Budget 2021-22












Note – numbers may not sum due to rounding.

Due to differences in timing of the Census in Scotland compared to the rest of the UK, the population estimates for 2021 are not yet available on a consistent basis. In order to ensure consistency, HM Treasury and the Scottish Government have agreed to calculate the Block Grant Adjustment using figures based on the ONS Mid-Year Estimates 2020. As such, the Block Grant Adjustments remain provisional, and will be revised once the Scottish Census 2022 results are available for the ONS to incorporate into their mid-year estimates. An additional reconciliation will then be required to account for this final population data, at a date to be determined.


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
  • 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

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 2021-22 Income Tax will be applied to the 2024-25 Scottish Budget. The reconciliation covers both Income Tax revenues and the BGA.

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