Implementation of the Scotland Act 2016: second report

Scottish Government sixth annual report on Part 3 (Financial Provisions) of the Scotland Act 2012 - second report on implementation of the Scotland Act 2016.

Chapter 3 - VAT Assignment

Scotland Act 2016

39. The Scotland Act 2016 allows for receipts from the first 10p of the standard rate of VAT and the first 2.5p of the reduced rate of VAT in Scotland to be assigned to the Scottish Government.

40. The power to set VAT rates will remain reserved to the UK Government. As such, the Scottish and UK Governments have agreed that requiring businesses to report their VAT separately for Scotland and the UK would impose an unwanted administrative burden, and have agreed that VAT raised in Scotland will instead be estimated.

41. Assignment of VAT to Scotland will begin in 2019-20. As per the Fiscal Framework agreement [11] there will be a one-year transitional period during which VAT assignment will be forecast and calculated, but with no impact for the Scottish Government's budget. From 2020-21 the financial impacts of any difference between forecast VAT receipts and the associated block grant adjustment will be applied to the Scottish Government's budget.

42. The Scottish Government is working with HMRC and HM Treasury to produce a model of VAT liabilities in Scotland, this will produce a Scottish VAT outturn estimate for use in reconciling the final budget position. This consists of producing a regional version of HMRC's VAT Theoretical Tax Liability ( VTTL) model.

43. As part of the Fiscal Framework agreement, the Scottish and UK Governments agreed to share equally all costs incurred as a result of the implementation and administration of VAT assignment. The Scottish Government and HMRC agreed the governance arrangements for the allocation and payment of these costs in February 2017. In 2016-17 total costs incurred by HMRC and the SG were £0.2m and in 2017-18, up to Q3, totalled £0.1m. These costs were split equally between the organisations.

44. The VAT assignment working group expects to produce its first estimate of VAT receipts in Scotland in 2018. The estimate will relate to outturn VAT.

45. UK and Scottish Government agreed that the Scottish Fiscal Commission ( SFC) will forecast the Scottish share of VAT receipts and Office for Budget Responsibility's ( OBR) forecasts of UK government receipts will be used to inform the block grant adjustments. The first forecasts of VAT receipts will be available in late 2018.


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