Administration of Scottish Income Tax 2017-18

30 November 2018

The NAO report considered:

  • HMRC’s calculation of the 2016-17 income tax revenue attributable to Scotland and provides assurance on the correctness of the amounts brought to account;
  • HMRC’s estimation of the 2017-18 income tax revenue attributable to Scotland and the NAO view on the methodology used to estimate the amount;
  • key controls operated by HMRC in the assessment and collection of Scottish income tax;
  • HMRC’s approach to assessing and mitigating the risk of non-compliance with Scottish rate provisions; and
  • the cost of administering Scottish income tax and provides assurance on whether the amounts are accurate and fair in the context of the costs incurred by HMRC.


HMRC has calculated the final income tax revenue for the Scottish Rate of Income Tax for 2016-17 as £4,347 million, 5% lower than the original estimate of £4,566 million.

For 2017-18, HMRC estimates that Scottish income tax revenue will be £11,896 million. This increased amount reflects the more comprehensive powers granted by the Scotland Act 2016 which became effective from 2017-18 onwards. These powers allow Scotland to set its own rates and bands for non-saving non-dividend income and retain all income tax raised from Scotland, not just a proportion.

In 2017-18, income tax rules in Scotland differed from the rest of the UK for the first time. HM Revenue & Customs will continue to administer and collect Scottish income tax as part of the UK tax system. HMRC has implemented several assurance processes to maintain the completeness and accuracy of the estimated 2.53 million Scottish taxpayer population.  However, this remains a key challenge facing HMRC in ensuring that Scottish income tax is assessed and collected properly.

In 2017-18 HMRC incurred and recharged £4.8 million of costs on the three Scottish income tax projects, of which £0.3 million was running costs, which the NAO concludes is fair under the agreement with the Scottish Government.

HMRC has confirmed that it will refine its estimation methodology to incorporate the new information that it has about taxpayers in Scotland

NAO recommendations:

a)     The complete and accurate calculation of the outturn of Scottish income tax revenue is a central responsibility of HMRC’s role in devolved taxes. We are content that both parties have a good understanding of the methodology, which has been agreed. We recommend that the methodology is formalised by consolidating it into a single agreed document that forms a baseline position from which future refinements can be made. This will support understanding of the process in the event of changing personnel on either side and reduce the risk that unagreed changes are made to the methodology in the future as better data become available.

b)     As part of its compliance strategy for Scottish income tax HMRC set out its intention to complete an annual review of its Strategic Picture of Risk (SPR) for Scotland. An updated SPR was not available for review as part of this report. We recommend that HMRC completes this review, incorporating a detailed analysis of the available Scottish taxpayer data for 2016-17, to inform its ongoing compliance work.

The NAO scrutinises public spending for Parliament and is independent of government. The Comptroller and Auditor General (C&AG), Sir Amyas Morse KCB, is an Officer of the House of Commons and leads the NAO.