Implementation of the Scotland Act 2016: ninth annual report

3. Scottish Income Tax

Since 6 April 2017, the Scottish Parliament has had the power to set the Income Tax rates and bands applicable to Scottish taxpayers on their non-savings and non-dividend income, but powers over the personal allowance and savings and dividend income are reserved to the UK. The rates and bands are set each year by a parliamentary motion known as a Scottish Rate Resolution.

Costs

2024-25 Developments

Additional implementation costs

22. HMRC completed the majority of the implementation work to deliver Scottish Income Tax by 2019-20. However, the announcement of the Scottish Advanced Rate at the Scottish Budget 2024-25 on 19 December 2023 attracted additional implementation costs.

23. HMRC invoiced the Scottish Government for £1.0 million of costs relating to the implementation and administration of Scottish Income Tax in 2023-24. Of this amount, £0.6 million related to running costs, which is similar to costs incurred in 2022-23. The remaining £0.4 million related to the implementation of the Advanced rate of Scottish Income Tax.

24. For the financial year 2024-25, the Scottish Government has been forecast to incur costs of £0.6 million for the administration of Scottish Income Tax. HMRC also expects to re-charge the Scottish Government a similar amount of £0.6 million to finish implementing the Advanced rate.

Assurance from National Audit Office & Audit Scotland

25. The National Audit Office (NAO) published its report^[8] on the administration of Scottish Income Tax 2022-23 on 17 January 2025. The report stated that “HMRC has adequate rules and procedures in place to ensure the proper assessment and collection of Scottish Income Tax and its complying with those rules”. Audit Scotland reviewed the approach taken by the NAO, as requested by the Scottish Parliament when Income Tax powers were devolved, and endorsed the NAO findings in their own report also published on 17 January 2025^[9].

Scottish Taxpayer Identification

26. HMRC has estimated that there were 2.8 million Scottish taxpayers in 2022-23, which is a 4.4% increase from 2021-22. Scottish Government and HMRC agree on the importance of the correct identification of Scottish taxpayers to enable the successful implementation of Scottish Income Tax powers. HMRC undertake regular address assurance activity on its customer data to ensure that its identification of the Scottish taxpayer population is as accurate as possible.

27. In 2024, HMRC undertook an additional exercise to match their Scottish taxpayer records to a third-party data source (known as a ‘data clash’). The aim of this exercise is to test whether HMRC's identification of Scottish taxpayers is corroborated by other data sources. At the time of the NAO report publication, the results from this data clash have not yet been finalised, these will be reported in 2024-25.

Outturn Data

28. HMRC published the 'Scottish Income Tax Outturn Statistics: 2022 to 2023^[10] in July 2024. This showed that Scottish Income Tax liabilities were £15.1 billion in 2022-23.

29. These figures were formally signed off after the NAO had completed their annual audit of HMRC Annual Report and Accounts, and Trust Statement in July 2024. This was the fifth publication of outturn data that included receipts from the five band Scottish Income Tax System implemented in 2018-19.

Future plans

30. We will continue to work with HMRC to oversee the conclusion of the delivery of the Advanced rate band and its incorporation into business as usual. We will also undertake further engagement with tax professionals and other stakeholders to identify areas of continuous improvement in the administration of Scottish Income Tax.