Scottish Building Safety Levy: consultation analysis report

4. Analysis Part B – Operational Considerations

Part B of the consultation document focused on operational considerations for the tax. These sections set out and invited views on the following:

• Taxable event
• Revenue authority
• Returns
• Compliance
• Appeals
• Duration

Taxable event

Question 13: Do you agree that liability for the Scottish Building Safety Levy should arise in relation to the issuance of acceptance of a completion certificate?

Of those who answered this question quantitatively (37 respondents), the breakdown of views was as follows:

Response	Total	Percentage
Yes	28	76%
No	9	24%

Developers, local government organisations, and other organisations (including other housing/property stakeholders) were generally in agreement that liability for the SBSL should arise in relation to the issuance of acceptance of a completion certificate. Views from individuals were more mixed. A full breakdown by respondent type is provided in the table below:

Respondent type	Yes	No
Developer	8	4
Other housing/property stakeholder	6	1
Local government organisation	6	0
Other organisation	3	0
Individual	5	4
Total	28	9

Finalisation of building works

Several responses expressed that liability arising at completion would be a sensible and logical approach, with the issuance of a completion certificate being a clearly defined milestone at which point the building works would be finalised. It was noted that this point would provide some certainty around calculating the tax, as the value, size, and other characteristics of the development may have changed throughout the construction process.

Delays and cash flow

Several responses emphasised that while liability for the tax may arise upon issuance of a completion certificate, this should not be when payment of the tax is due. It was raised that there should be no active conditionality between the payment of the tax and the issuance of a completion certificate, as this would have the potential to create delays and problems with cash flow in an already complex process of development completion and sale. It is worth noting that a few responses appeared to misunderstand ‘liability’ for the tax as the point at which payment would be required, and disagreed with the proposal on this basis.

Respondents highlighted that the overall funding of development sites is often reliant on the sales of the first homes completed, and that any delay to completion or requirement to pay for the tax at that stage would make other developments unviable.

“Under no circumstance can administrative requirements of the SBSL hold up the completion process, including waiting for confirmation of payment from the tax authority. The interdependencies between completion of process and sale can already be complex and challenging, or even fraught and stressful... Members preference would be for payment of the levy to be permitted upon completion of the development. This would also assist with cash flows and provide further protection to SMEs and reduce administrative burden.” - Homes for Scotland

A few respondents noted that setting the liability (but not payment) at issuance of a completion certificate, therefore late in the development process, would aid developers (particularly SMEs) with cash flow, though it was also noted this would be better if liability arose at sale. One respondent noted that connecting liability for the tax with the completion certificate may incentivise developers to avoid applying for a completion certificate if the property has not yet sold, to avoid issues with cash flow.

Local authority resource

A few responses raised that determining liability at the taxable event should not place any additional burden on local authorities without providing them with additional resource, with one respondent noting that existing processes should be used where possible.

Absence of completion certificate

A few responses noted the need to consider liability for the SBSL in cases where a property is occupied without a completion certificate, for example if a temporary occupation certificate is issued.

Other

Other points were raised by singular responses, for example that for some properties (for example, show homes), a completion certificate will be issued but they will not be sold.

Engagement on taxable event

The Expert Advisory Group noted that a single payment point late in the development process would be preferable for reasons of cash flow. It was also noted that developments may be started but never completed, and connecting the tax to the completion certificate would avoid tax being applied to unfinished developments.

Revenue authority

Question 14: Do you agree that Revenue Scotland should act as the revenue authority for the Scottish Building Safety Levy?

Of those who answered this question quantitatively (37 respondents), the breakdown of views was as follows:

Response	Total	Percentage
Yes	28	76%
No	9	24%

Developers, local government organisations, and other organisations (including other housing/property stakeholders) were generally in agreement that Revenue Scotland should act as the revenue authority for the SBSL. Views from individuals were more mixed. A full breakdown by respondent type is provided in the table below:

Respondent type	Yes	No
Developer	9	3
Other housing/property stakeholder	6	0
Local government organisation	7	0
Other organisation	3	0
Individual	3	6
Total	28	9

Centralisation

Several responses expressed the view that Revenue Scotland acting as the revenue authority for the SBSL would ensure the process is centralised and nationally consistent. Respondents also noted that a centralised collection authority would avoid placing an additional burden on local authorities and on the building control process.

Conversely, a few respondents expressed that local authorities should administer the SBSL, with some stating that it would be more efficient to add to the existing building control process, and another raising that this would be consistent with the approach in England.

Resource and expertise

Respondents expressed that it would be a sensible and logical approach for Revenue Scotland to act as the revenue authority for the SBSL, and that they have the necessary resources, expertise, and compliance powers already in place to administer the SBSL efficiently.

Alignment with other devolved taxes

Some responses noted that Revenue Scotland acting as the revenue authority for the SBSL would align with their operation of other devolved taxes in Scotland.

One respondent also noted that it is important Revenue Scotland are given adequate resources to fulfil these additional tax administration responsibilities.

Other

Some other specific points were raised by a singular response and so have not been considered in further detail, for example, that the SBSL should be managed at a UK level.

Returns

Question 15: Which of the following schedules do you think is the most appropriate for the frequency of returns:

a) Per unit

b) Monthly

c) Quarterly

Please give reasons for your answer.

Of those who answered this question quantitatively (32 respondents), the breakdown of views was as follows:

Response	Total	Percentage
Per unit	11	34%
Monthly	0	0%
Quarterly	21	66%

Developers and local government organisations strongly preferred a quarterly schedule for returns. Views from other organisations and individuals were more mixed between quarterly and per unit. A full breakdown by respondent type is provided in the table below:

Respondent type	Per unit	Monthly	Quarterly
Developer	3	0	9
Other housing/property stakeholder	2	0	4
Local government organisation	1	0	4
Other organisation	2	0	1
Individual	3	0	3
Total	11	0	21

Administrative burden

Many responses expressed that a quarterly returns schedule would be the least administratively burdensome and would align with that of other taxes and regular administrative processes.

Conversely, a few respondents stated that a per unit returns schedule would be more administratively simple, as it would tie the return to the completion and make payment dates clear.

It was noted that monthly returns would be onerous.

Efficiency and cash flow

Some responses noted that a quarterly returns schedule would be efficient and would assist with cash flow, reflecting the pace of housing development and delivery and providing a longer returns and payment period to allow for the completion and sales of developments.

A few respondents expressed that half-yearly or annual returns would be preferable, to maximise alignment with development profit profiles and minimise cash flow issues.

Other

Some other comments were raised on returns more generally but not in reference to the specific question of frequency. This included a couple of respondents noting that there should be a provision to edit tax returns within a given time frame, if previous information given was not yet finalised. This also included a couple of respondents re-emphasising the preference for payment to be due after completion of a development.

Some other specific points were raised by a singular response, for example, that any increased administration costs for paying the SBSL could be passed on through house prices.

Engagement on frequency of returns

The Expert Advisory Group did not hold a strong view on the frequency of returns, expressing a preference for quarterly or monthly but noting a per unit option could work without significant difficulty, as there is an e-portal which could facilitate real-time processing. A question was raised in the group about synchronizing returns with planning levies, which are paid six months in arrears.

Compliance

Question 16: Do you agree that, in relation to a Building Safety Levy, the tax authority should have the investigatory and enforcement powers set out above?

Of those who answered this question quantitatively (33 respondents), the breakdown of views was as follows:

Response	Total	Percentage
Yes	25	76%
No	8	24%

Developers, local government organisations, and other organisations strongly agreed with the proposals for investigatory and enforcement powers in relation to the SBSL. Views from individuals were more mixed. A full breakdown of views by respondent type is set out in the below table:

Respondent type	Yes	No
Developer	9	2
Other housing/property stakeholder	4	1
Local government organisation	7	0
Other organisation	2	0
Individual	3	5
Total	25	8

Some responses simply expressed that the proposed investigatory and enforcement powers seem reasonable for compliance purposes and in line with what would be expected for any tax.

Clarity for taxpayers

Respondents noted the importance of clarity in this area for taxpayers, expressing that the investigatory and enforcement powers for the SBSL should mirror those of existing Scottish taxes or that any variations should be consulted on and made clear. One of these responses also noted that the revenue authority should communicate their approach to penalties clearly to taxpayers.

Protections for taxpayers

A few responses focused on the need for taxpayers to be protected and for powers to be applied proportionally and fairly. One respondent raised that the revenue authority could take a ‘light touch’ approach to compliance initially following introduction of the SBSL, also noting that penalties should not be applied to late nil-returns where no tax is due. Another respondent expressed the view that the compliance approach should seek to protect the viability of businesses, noting the risks involved with housing development and the potential for unforeseen issues to impact cash flow.

Other

Respondents who disagreed with the proposal for Revenue Scotland to act as the revenue authority for the SBSL therefore disagreed with the proposed investigatory and enforcement powers, expressing the view that compliance should be part of the local authority building control process. Some other specific points were raised by a singular response, for example, that these powers should not be needed as the process of paying the SBSL should be sufficiently clear.

Question 17: Do you agree that there should be no active conditionality between the issuance of each completion certificate and payment of the Levy?

Of those who answered this question quantitatively (32 respondents), the breakdown of views was as follows:

Response	Total	Percentage
Yes	25	78%
No	7	22%

Developers, local government organisations, and other housing/property organisations strongly agreed that there should be no active conditionality between the issuance of each completion certificate and payment of the SBSL, in that the former should not be contingent on the latter. Views from other organisations and individuals were more mixed. A full breakdown of views by respondent type is set out in the below table:

Respondent type	Yes	No
Developer	9	2
Other housing/property stakeholder	5	0
Local government organisation	7	0
Other organisation	1	1
Individual	3	4
Total	25	7

Timing and cash flow

Some responses raised that active conditionality between the issuance of the completion certificate and payment of the SBSL would add delays and burdens to the process of house purchasers moving into the property.

“...there could very well be purchasers imminently expected to occupy the home, who will have invested considerable personal resource, time and effort for their new home. The BSL should not be a reason for causing delayed entry and occupation of the home.” - Scottish Property Federation

Relatedly, one respondent noted that delays to sales could impact cash flow and subsequently affect the ability to pay the SBSL.

Separation of processes

A few respondents expressed the view that the process of paying the SBSL should not be introduced into the process of building standards, as these are legislatively distinct areas. One of these respondents stated that issuance of a completion certificate should be solely dependent on compliance with building standards, rather than being connected to any other conditions.

Alternative sanctions

It was noted that alternative sanctions could or should be imposed for non-payment of the SBSL, rather than relying on active conditionality between the completion certificate and payment.

Necessity of conditionality

A few responses stated that active conditionality is necessary for the payment of the SBSL. These expressed their view that the process should follow the principle of paying for something before it can be obtained, with one noting an example that developers must pay for a building warrant.

Engagement on active conditionality

It was noted by the Expert Advisory Group that while active conditionality between issuance of a completion certificate and payment of the SBSL would support compliance, this could create additional burdens for the process of completion.

Question 18: What are your views on introducing additional sanctions for taxpayers where Revenue Scotland deem there to be persistent or major non-compliance in paying the Levy?

Some responses simply expressed that the proposal for additional sanctions in cases of persistent or major non-compliance would be an acceptable and appropriate approach. Some responses were stronger in their support for additional sanctions, expressing the view that these would be vital to tackle and deter repeated and persistent non-compliance.

Proportionality and impacts

Several responses raised the importance of sanctions being applied in a proportionate and fair way, with some also emphasising that consideration of the impact of sanctions on businesses would be required. It was expressed by a few respondents that these sanctions should not be applied to developers who may have a genuine misunderstanding of or dispute over their liability, or who may be struggling with the introduction of the SBSL. One respondent suggested an approach of ‘graduated sanctions’ which increase with each offence to ensure proportionality.

A few responses noted the suggestion in the consultation that local authorities could withhold access to the building standards system for developers that are persistently non-compliant, with a few expressing the view that this proposed penalty could have significant impacts on businesses and the delivery of new homes while not alleviating any business or cash flow issues which may be preventing payment. Local Authority Building Standards Scotland, in their response, stated that this proposed penalty would require careful consideration, appropriate resourcing for local authorities, and robust and effective legislation.

Clarity

Some respondents sought additional clarity on how these additional sanctions would be determined and applied in practice, with a few specifically seeking clarification on how ‘persistent or major non-compliance' would be defined. It was noted that any sanction mechanisms should be clear and transparent, with a few responses also stating that these mechanisms should align with those of existing Scottish taxes.

Existing mechanisms

A few responses noted the need for sanctions in cases of persistent or major non-compliance but expressed the view that existing mechanisms should be sufficient to tackle these cases, rather than there being a need to introduce additional sanctions.

Other

Other comments raised by singular responses included the view that active conditionality between the completion certificate and payment of the SBSL would be sufficient to deter non-compliance, that interest rates could be applied to the unpaid Levy, and that non-financial sanctions would be necessary as financial sanctions would not significantly impact larger businesses.

Question 19: Are there specific aspects of the housebuilding industry that may require a different approach to compliance than set out above?

Around one third of respondents who answered this question responded that they had no further information or comments to offer on this point. Some responses appeared to misunderstand the question and provided comments and views on the housebuilding industry in relation to the SBSL more generally, rather than in relation to the approach to compliance.

Facilitation of payment and protection of viability

Some responses highlighted that private housebuilding is procyclical, in that it is responsive to wider market and economic conditions, increasing in times of economic growth and decreasing in times of wider economic difficulty. These responses expressed the view that the compliance regime for the SBSL should be geared towards protecting the health of the sector (therefore also protecting the tax base) and should include mechanisms to support ongoing viability and cash flow for businesses. It was suggested, for example, that deferrals or reliefs could be put in place in cases where a developer can demonstrate that payment of the SBSL will constitute a substantial risk to their business.

“A ten-year period will see changing market conditions. Therefore, protections must be in place to protect the health of the sector, particularly for smaller businesses. This includes the Scottish Government overseeing a regime that enables home builders to have sufficient cashflow to prioritise new home delivery.” - Barratt Redrow PLC

Differences in housing delivery models

While one respondent expressed the view that compliance should be enforced equally to all in the housebuilding industry, another noted the differences in the delivery model of Build to Rent and Purpose-Built Student Accommodation developments as compared to homes for onward sale. This response highlighted that these developments would have a higher number of units being delivered at once, therefore incurring significant compliance requirements, and noted that the revenue authority should be cognizant of this different housing delivery model.

Appeals

Question 20: Do you agree with our proposals for dispute resolution in relation to the Scottish Building Safety Levy?

Of those who answered this question quantitatively (32 respondents), the breakdown of views was as follows:

Response	Total	Percentage
Yes	26	81%
No	6	19%

Developers, other housing/property stakeholders, and local government organisations generally strongly agreed with the proposals for dispute resolution. Views from individual respondents were more mixed. A full breakdown of views by respondent type is set out in the below table:

Respondent type	Yes	No
Developer	9	2
Other housing/property stakeholder	5	1
Local government organisation	7	0
Other organisation	0	0
Individual	5	3
Total	26	6

Some responses simply expressed that the proposals for dispute resolution seemed to be a reasonable approach.

Capturing complexities and issues

It was noted that the proposed dispute resolution processes would enable complexities, variations, and common issues arising during the implementation of the tax to be captured and allow for the SBSL to be refined.

Fairness and trust

Responses raised the importance of developers being able to appeal decisions, with one of these emphasising that this would foster fairness and trust in the process.

Avoiding disputes

It was suggested that mechanisms should be put in place to avoid disputes occurring, with one stating that the costs and processes of the SBSL should be clear upfront, and another highlighting the importance of employing early intervention techniques to avoid escalation into disputes.

Other

Other comments from singular responses included the view that the appeals process should align with existing processes to avoid additional administrative burdens.

Duration

Question 21: What are your views on having a sunset clause or end date for the Scottish Building Safety Levy?

Use of revenue

Many responses expressed the view that a sunset clause or end date should be implemented for the SBSL, and that the revenue raised should be used for cladding remediation only with the tax ending once those associated costs have been met.

“At the outset there must be a clear aspirational amount for the BSL to raise to remedy the unsafe cladding. Once that amount has been raised and cladding remedied the requirement for BSL should end. Failure to have such a clause may result in monies not needed being unfairly obtained from the development industry.” - Bancon Homes

A few respondents noted specifically that the SBSL should not be in place for longer than ten years, with another stating that the SBSL should be progressively wound down as the cost of remediation decreases. One respondent stated that the revenue raised should be spent on remediation in a timely manner and returned to developers if not spent within a specific time frame.

Some responses, however, expressed the view that a sunset clause is not needed, with suggestions that revenue raised from the SBSL could be used to fund other building safety issues besides cladding remediation.

Clarity on revenue target and spend

Several responses raised that there is currently a lack of clarity on the total revenue target and spend, and that an end date could not be determined until there was greater certainty around this. Some responses noted that regular reviews for the SBSL should be implemented in place of a sunset clause.

“Given the uncertain time horizon, a sunset clause/end date may not be feasible at this stage. However, it is important that the levy is only in place to deal with cladding remediation and with a commitment to remove the levy as soon as possible. A regular statutory review point would help build confidence in that commitment.” - South of Scotland Enterprise

Sunrise clause

Homes for Scotland proposed in their response that a sunrise clause should be adopted for the SBSL, with the SBSL only commencing once the housebuilding sector is strengthened and is meeting housing delivery targets, and there is further clarity and progress on the CRP. Some other responses expressed that the SBSL should not be introduced until the total cost, scope, and duration of the CRP is known.

Impacts

A concern was expressed that the implementation of a sunset clause could incentivise developers to delay the introduction of development projects until after the end date of the SBSL, causing knock-on effects to other industries and introducing market distortion.

Question 22: Do you think there should be a regular review for the Scottish Building Safety Levy?

Of those who answered this question quantitatively (37 respondents), the breakdown of views was as follows:

Response	Total	Percentage
Yes	32	86%
No	5	14%

Developers, other housing/property stakeholders, local government organisations, and other organisations generally strongly agreed that there should be a regular review for the SBSL. Views from individual respondents were more mixed. A full breakdown of views by respondent type is set out in the below table:

Respondent type	Yes	No
Developer	9	2
Other housing/property stakeholder	7	0
Local government organisation	7	0
Other organisation	4	0
Individual	5	3
Total	32	5

Monitoring revenue target and spend

Many responses raised that regular reviews for the SBSL could be used to monitor the revenue raised and spent, to assess remediation progress and determine how much more funding may be required to be raised for the CRP. It was noted by respondents that this would ensure there is not an overaccumulation or a shortfall in the revenue needed for remediation.

Evaluating effectiveness of levy

Several responses expressed that reviews would be a way to evaluate how the SBSL is working, and to capture and account for any unanticipated issues, economic or industry changes, and impacts of the SBSL.

“The construction sector and the impacts that affect and shape it are constantly changing, from economic shocks to changing policy objectives. As such a regular review would be useful to ensure that the Levy continues to operate effectively.” - Royal Institution of Chartered Surveyors

Changes to rates

Some developer respondents highlighted a concern that reviews could be used to increase rates of the SBSL, and that this could have a significant impact on viability of developments, particularly ongoing projects where an increase in cost has not been accounted for. It was noted that if reviews found an increase in rates was necessary, that this should be subject to further consultation and appropriate notice periods.

“Legislation for a SBSL must prevent Ministers being able to increase the levy based on the findings of the review but should allow for Ministers to subsequently reduce the levy or set at a nil-rate. Should Ministers wish to seek to increase the rate of the levy, Ministers should re-consult in accordance with the RIAG policy cycle and Framework for Tax 2021.” - Homes for Scotland

One respondent expressed the view that the SBSL will result in fewer homes being built, and subsequently a smaller tax base, and that this should not result in further increases to tax rates as this would compound the problem.

Wider building safety issues

A few responses suggested that regular reviews could be used to monitor and account for potential wider building safety issues beyond cladding remediation, to consider the long-term purpose of the SBSL.

Other

Other comments given by singular responses included the view that reviews should capture and record impacts and costs to specific development types, the point that regular reviews would align with the UK Government’s proposals for a review every three years, and the view that there should be a mechanism for regular maintenance and amendments to all devolved taxes.

Scottish Government response

The Scottish Government welcomes the views set out in responses to these questions on operational considerations for the SBSL. In line with the approach taken for the existing devolved taxes, much of the technical detail regarding tax administration will be set out in secondary legislation or in certain cases by Revenue Scotland. The Scottish Government will work with Revenue Scotland to develop the detail, including undertaking a further programme of stakeholder engagement.

• Revenue Scotland, the tax authority for Scotland, will manage the administration of the SBSL, drawing on its extensive experience of collecting and managing other devolved taxes.
• The Scottish Government agrees with stakeholder views against active conditionality, in that the issuance of a completion certificate should not be contingent on payment of the SBSL, on the basis that this conditional link could disrupt and create delays in the housebuilding process. Instead, we propose to utilise the existing suite of enforcement mechanisms provided through the Revenue Scotland and Tax Powers Act 2014 (“the 2014 Act”) to discourage non-compliance.
• The Scottish Government intends that the owner of a completed new residential unit must be registered with Revenue Scotland, and that registered persons must submit tax returns and pay tax in such periods and in such a manner as are determined by the Scottish Ministers in regulations.
• Revenue Scotland has the power to issue penalty notices to taxpayers and their agents for non-compliant behaviours with respect to the devolved taxes. Where penalties listed in the 2014 Act apply to all devolved taxes, they will also apply to the SBSL. Where amendments are required to the 2014 Act for penalties to apply to SBSL they are set out in this Bill. The framework for the collection, administration and payment of penalties provided by the 2014 Act will apply to all SBSL penalties.
• The Bill modifies the 2014 Act to extend the list of decisions made by Revenue Scotland for which review by Revenue Scotland can be requested or an appeal made to the Scottish Tribunals.
• The Bill does not contain a provision for a sunset clause for the SBSL. As raised by some consultation respondents, this decision reflects the risks this would pose to the financing of the CRP with remaining uncertainty around costs at this stage.
• The Bill contains a provision for Scottish Ministers to report on the operation of the SBSL, including how the proceeds from the levy have been used.