Address records remain a challenge for the Scottish Rate of Income Tax

23 December 2016

A National Audit Office (NAO) report says the key challenge to HMRC’s delivery of the Scottish Rate of Income Tax (SRIT) is maintaining and updating its record of address details in order to identify Scottish taxpayers.

The NAO report says HMRC face significant challenges in administering SRIT, particularly when tax rates and thresholds differ between Scotland and the rest of the UK.

The report highlights that it is crucial that it maintains accurate address information for Scottish taxpayers, and ensures that the potential for tax avoidance and evasion is mitigated. HMRC also needs to be able to report the actual amount of SRIT collected to the Scottish Government, and provide an IT solution that allows private pension providers to claim relief at source.

Amyas Morse, head of the National Audit Office said that the NAO has warned that divergence in tax rates between Scotland and the rest of the UK “introduces the risk of tax avoidance and evasion”. From April, Scots will pay the 40p rate of tax at £43,430, even though it will rise to £45,000 in England and Wales. HMRC has already drawn up plans to tackle the risk among those who should be paying the Scottish rate of income tax (SRIT), but the NAO said HMRC faces significant challenges in identifying workers north of the Border and collecting the correct amounts due.

The NAO report also reveals an IT error meant HMRC had failed to inform 420,000 individuals of their new tax status in 2015, ahead of new tax-raising powers being transferred to Holyrood. They eventually received their new “S” tax code three months after it came into force last April.

Read the full report from the NAO: The administration of the Scottish Rate of Income Tax 2015-16.