Scotland Act 2016 implementation: seventh annual report

Report to inform parliament of the implementation work that has been carried out on fiscal powers devolved in the Scotland Act 2016.

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.


Table 3.1: Administrative Costs
£m 2020-21 2021-22 2022-23
Administration/Operation 0.7 0.6 0.6

Move to business as usual administration costs

18. His Majesty’s Revenue and Customs (HMRC) completed the majority of the implementation work to deliver Scottish Income Tax by 2019-20, and therefore there are no implementation costs for the last three years reflecting the move to a business as usual delivering of Scottish Income Tax.

19. HMRC estimate the total costs charged to the Scottish Government for implementing the Scottish Income Tax powers from the Scotland Act 2012 and Scotland Act 2016 to be £24.3 million during the period 2012-13 to 2019-20. The costs of altering systems and processes in the future, for example to accommodate significant changes to rates and thresholds, will be recharged to the Scottish Government.

20. For the financial year 2022-23, the Scottish Government has been invoiced costs of £0.6 million for the administration of Scottish Income Tax.

Assurance from National Audit Office and Audit Scotland

21. The National Audit Office (NAO) published its report[2] on the administration of Scottish Income Tax 2021-22 on 12 January 2023. The report stated that "HMRC has adequate rules and procedures in place to ensure the proper assessment and collection of Scottish income tax and that those rules are being complied with". 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[3] also published on 12 January 2023.

Scottish Taxpayer Identification

22. HMRC estimate that there were around 2.5 million Scottish taxpayers in 2020-21. 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.

23. In 2021, HMRC undertook an 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. HMRC's analysis of the results show that their identification of Scottish taxpayers is correct in 98-99 per cent of cases. HMRC undertakes the data clash exercise every two years and will next do so in 2023-24.

Outturn Data

24. HMRC published the 'Scottish Income Tax Outturn Statistics: 2020 to 2021'[4] in July 2022. This showed that receipts from Scottish Income Tax were £11.9 billion in 2020-21.

25. 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 2022. This was the third publication of outturn data that included receipts from the five band Scottish Income Tax System implemented in 2018-19.

Correction to historical income tax outturn data

26. In 2021, HMRC discovered a discrepancy whereby a small number of non-resident taxpayers were flagged incorrectly as being Scottish taxpayers. Legally, it is not possible to be a Scottish taxpayer while being non-resident, meaning the Income Tax revenue generated from these taxpayers should have been allocated to rUK outturn. No taxpayers paid the incorrect level of tax as a result of this discrepancy.

27. This led to outturn figures being corrected for 2020-21 outturn, with the historic series (2016-17 to 2019-20) also being updated in HMRC’s 2020-21 statistical release. The process for producing the outturn figures has been updated by HMRC to ensure this is not repeated.

28. This inconsistency had funding implications for the Scottish Government. While the correction reduced the Scottish Income Tax revenue from 2017-18 on, it also affected the 2016-17 figures, the year from which the BGA is baselined. The impact of this was that the Scottish Government had to manage a larger negative reconciliation in each of the years 2020-21 to 2022-23 (relating to outturn for 2017-18 to 2019-20 respectively). Use of the corrected outturn statistics would have reduced the negative reconciliation applied to the Scottish Budget by about £7 million each year.

29. HMT proposed to correct this error by increasing the 2022-23 Scottish Budget by £21 million, but with a one-off reduction to the Scottish Government’s available borrowing for Income Tax forecast error in 2022-23 by the same amount, reducing that limit from £34 million to £14 million. In September 2022 the Scottish Government accepted the proposal of the £21 million transfer, with arrangements made for this addition to be transferred as part of the supplementary estimates process.


30. Scottish Income Tax rates and bands for 2022-23 are as follows:[5]

Table 3.2: Scottish Income Tax Rates and Bands for 2022-23
Scottish Income Tax Bands Name Rate
£12,571*- £14,732 Starter Rate 19%
£14,733 - £25,688 Scottish Basic Rate 20%
£25,689 - £43,662 Intermediate Rate 21%
£43,663 - £150,000** Higher Rate 41%
Above £150,000** Top Rate 46%

*Assumes individuals are in receipt of the Standard UK Personal Allowance.

**Those earning more than £100,000 will see their Personal Allowance reduced by £1 for every £2 earned over £100,000.

31. A Scottish Rate Resolution setting the Scottish Income Tax rates and bands for 2023-24[6] was approved by MSPs on 9 February 2023. The rates and bands are detailed in Table 3.3.

Table 3.3: Scottish Income Tax Rates and Bands for 2023-2024
Scottish Income Tax Bands Name Rate
£12,571* – £14,732 Starter Rate 19%
£14,733 - £25,688 Scottish Basic Rate 20%
£25,689 - £43,662 Intermediate Rate 21%
£43,663 - £125,140** Higher Rate 42%
Above £125,140** Top Rate 47%

*Assumes individuals are in receipt of the Standard UK Personal Allowance. **Those earning more than £100,000 will see their Personal Allowance reduced by £1 for every £2 earned over £100,000.



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