Prime Minister considering more tax powers for Scotland

18 May 2015

The Scottish First Minister has told David Cameron that she also wants powers devolved to Scotland over business taxes, employment and equality law, the minimum wage and national insurance

The Telegraph has reported that the Prime Minister, after a meeting with the Scottish First Minister, Nicola Sturgeon, said another vote on breaking-up Britain was not “remotely on the cards”, but that he will consider requests to devolve control over minimum wage, business taxes and extra powers over welfare.


CIPP comment

Following the result of the Scottish referendum in September 2014, the Prime Minister announced that Lord Smith of Kelvin had agreed to oversee a set of cross-party talks with the purpose of agreeing a package of powers to be devolved to strengthen the Scottish Parliament within the UK. The Smith Commission recommended that:

  • The parliament should be given the power to set income tax rates and bands on earned income and will retain all of the income tax raised in Scotland.
  • The parliament should be given powers to allow 16 and 17-year-olds to vote in Scottish elections.
  • The parliament should be given powers to create new benefits in devolved areas and make discretionary payments in any area of welfare.
  • A range of other benefits that support older people, carers, disabled people and those who are ill should also be fully devolved.
  • The Scottish government and Scottish Parliament should have a "formal consultative role" in the process of reviewing the BBC Charter.

These recommendations were taken forward in consultation with the Scottish Parliament's five parties. The then leaders of Labour and The Liberal Democrats agreed with David Cameron that a new Scotland Bill will be introduced in the first session of a new Parliament and that the recommendations of the Commission will be implemented.

We know that from April 2016 the Scotland Act 2012 gives the Scottish Parliament the power to set the rates of Income Tax and the thresholds at which these are paid for the non-savings and non-dividend income of Scottish taxpayers. There will be no restrictions on the thresholds or rates the Scottish Parliament can set. All other aspects of Income Tax will remain reserved to the UK Parliament, including the personal allowance, the taxation of savings and dividend income and the ability to introduce and amend tax reliefs and the definition of income.

In April 2015 the Act replaced the Stamp Duty Land Tax and Landfill Tax with Land and Buildings Transaction Tax and Scottish Landfill Tax, which are administered by Scotland’s new tax authority, Revenue Scotland.

The Act also provides powers for new taxes to be created in Scotland and for additional taxes to be devolved, so if the Prime Minister agrees to devolve further tax powers then additional changes could potentially come into effect quite quickly.

For employees and pensioners, the Income Tax change will be applied through PAYE. HMRC will issue tax codes with an S prefix to employers in the months before April 2016 which will identify those employees who are Scottish taxpayers. Employers will deduct tax at the appropriate rates, which may be higher or lower than or the same as those which apply in the rest of the UK.

The CIPP Policy Team is part of the Stakeholder Group looking at the technical aspects of the implementation of the Scottish Rate of Income Tax. We will monitor developments closely and continue to keep the profession informed of any further changes.