Scottish Income Tax - operation by HMRC: service level agreement

Administration of SIT

Setting the Rates and Bands

The Scotland Act 2012 provided the Scottish Parliament the power to raise or lower Income Tax by up to 10p in the pound (known as the Scottish Rate of Income Tax). The Scotland Act 2016 later provided the Scottish Parliament with the power to set the rates and band thresholds that would apply to non-savings, non-dividend income paid by Scottish taxpayers.

Each year, the Scottish Parliament must pass a Scottish Rate Resolution which will set the Income Tax rates and bands to be applied for Scottish taxpayers. This must be passed prior to the start of the tax year in which the rates are due to apply.

As far as administration is concerned, HMRC will make orderly preparations for the next tax year, including providing all UK taxpayers (including Scottish taxpayers) and employers with correct coding information in a timely way.

The Scottish Government and HMRC will work together to ensure that these administrative steps are planned and carried out efficiently and in a timely way (taking into account the Budget cycles of both governments) to minimise costs, including costs to employers.

In the absence of a Scottish Rate Resolution, the Scotland Act 1998 enables the UK government to lay a Treasury Order to allow for the continued operation of PAYE for Scottish taxpayers at the rates and bands set for the previous tax year.

The ability to change, add or remove Income Tax reliefs remains reserved to the UK Parliament.

The ability to define, change, add or remove types of income to which Income Tax can be applied remains reserved to the UK Parliament.

Collection of SIT

HMRC is responsible for the collection and management of the revenues from Income Tax by virtue of section 5(1)(a) of the Commissioners for Revenue and Customs Act 2005.

HMRC remains responsible for the preservation of customer data relating to SIT and SIT customers in line with its usual processes. To that end, HMRC also retains responsibility as the Data Controller for SIT and adherence to wider data protection law, including the General Data Protection Regulation (GDPR) and the Data Protection Act (DPA) 2018, in line with its own organizational Privacy Notice.

HMRC and the Scottish Government will work together to make necessary preparations and ensure that UK taxpayers (including Scottish taxpayers) have the correct rates and bands applied.

Any issues of dispute about the administration of SIT will be matters between Scottish taxpayers and HMRC.

Scottish Taxpayers

HMRC will identify Scottish taxpayers, as defined in section 80D of the 1998 Act, from information on its systems and by interaction with the taxpayers themselves. This will be recorded on HMRC systems by a Scottish taxpayer identifier for each individual.

HMRC will maintain an accurate record of Scottish taxpayers by updating the identifier as addresses are changed and by interaction with the taxpayers themselves.

HMRC may, subject to its obligations about taxpayer confidentiality, inform appropriate third parties, such as pension providers, whether a person is a Scottish taxpayer.

Compliance

HMRC will carry out risk analysis and compliance activity to address SIT non-compliance on behalf of the Scottish Government. HMRC will discuss compliance activity with the Scottish Government.

Where the Scottish Government proposes that further activity should be carried out in respect of SIT and it is agreed that this is feasible and would reduce revenue risk and improve compliance, HMRC will carry out such activity. This would be charged for on the basis set out below.

Each year, HMRC will produce a Scottish Strategic Picture of Risk and a Scottish Compliance Plan. The SIT Compliance Working Group will oversee HMRC’s work on SIT compliance and will report to the SIT Board.

Data Sharing

The Fiscal Framework Agreement between the UK government and the Scottish Government sets out that both governments have the agreed objective to provide each other with as full and open as possible access to technical, operational and policy information.

HMRC will provide the Scottish Government with information, including data, where it is required for Scottish Ministers and officials to discharge their duties in respect of Parliamentary accountability, scrutiny, rate setting, policy development, and forecasting in relation to SIT.

Where the provision of information would involve significant analysis time, HMRC will notify Scottish Government of the likely cost and time period involved. If Scottish Government authorises the work and agrees to pay, HMRC will undertake this work.

Where HMRC is unable to provide the information requested by the Scottish Government, HMRC will set out the reasons for this in writing.

HMRC operates within legal constraints about taxpayer confidentiality. The Commissioners for Revenue & Customs Act 2005 (CRCA) prohibits the disclosure of information held by HMRC, but in the list of exceptions to this, section 18(2)(a) allows HMRC to disclose information for the purpose of a function of HMRC (which income tax is). HMRC cannot though provide any analysis that identifies individual taxpayers, or that would allow amounts of tax relating to individual taxpayers to be inferred.

If any disputes arise regarding the sharing of information, these will be dealt with using the disputes resolution policy set out in this Agreement.

Freedom of Information Requests

HMRC is subject to the requirements of the Freedom of Information Act 2000 and the Environmental Information Regulations 2004. The Scottish Government is subject to the requirements of the Freedom of Information (Scotland) Act 2002 and the Environmental Information (Scotland) Regulations 2004.

Information regarded as sensitive by either organisation will be carefully considered by both parties before it is disclosed in response to an information request. Both parties should assist and co-operate with each other to enable each to comply with their information disclosure obligations.

If a request is made to either organisation for information received from the other party, or for information which might be sensitive for the other party, the organisation in receipt of the request will, where reasonably practicable, consult the other before disclosing the information. If the Scottish Government or HMRC considers that any or all of the information proposed for disclosure should be withheld, that organisation will give a full explanation, detailing, under reference to the applicable legislation, which exemption or exception is considered to apply to each piece of proposed withheld information; and if relevant, why the balance of the public interest test falls in favour of withholding the information. The organisation in receipt of the request will issue its response within the relevant statutory timescales, whether or not the other party has provided comments on the proposed disclosure.