Agreement on Scottish tax reliefs a pragmatic step, say tax professionals

The Chartered Institute of Taxation (CIOT) has welcomed a “practical and pragmatic” agreement between the UK and Scottish Governments on changes to tax reliefs following last month’s Scottish Budget.

However, the Institute warned that the changes highlighted a widening gap between the Scottish and UK tax regimes because of the partial devolution of taxpowers that would increase both the costs and complexity of administering Scottish income tax.

The agreement does not address the misalignment between income tax and the Upper Earnings Limit of National Insurance contributions, which will result in some middle-income earners paying a higher marginal rate of tax and National Insurance (NI) than those on higher incomes.

Among the measures contained in the HMRC note Changes to tax reliefs following the Scottish Government’s Budget was confirmation that taxpayers impacted by the introduction of the new starter (19 per cent) and intermediate (21 per cent) rates will continue to benefit from Marriage Allowance at the rate of 20%, worth up to £238 per year.

In 2018/19, those Scottish taxpayers who make pension contributions under relief at source arrangements will also continue to benefit from pensions relief applied at 20% until a long-term solution can be found. The guidance also confirmed that taxpayers paying the intermediate, higher and top rates of tax will be able to claim extra relief through self-assessment or Pay As You Earn (PAYE).

Such provisions already exist for UK higher and additional rate taxpayers but the introduction of the new intermediate tax rate is likely to increase the overall number of people who are eligible to claim extra relief.

Moira Kelly, chair of the CIOT Scottish Technical Committee, said: “The agreement between the UK and Scottish Governments on the continued operation of pensions relief and Marriage Allowance are both practical and pragmatic and give taxpayers and advisers much needed certainty a little over two weeks before the start of the new tax year.

“Complexity was always going to be the price to pay for having control over some but not all aspects of the income tax regime. While the differences next year may not be huge, they expose the vulnerability of the Scottish tax regime to increasing levels of complexity and confusion.

“The nature of our tax system already makes it very difficult for the public to understand what they pay and when they pay even before these extra complexities became known.

“It is a timely reminder of the need to move the debate on the devolved taxes away from simply working out what we will pay and when we pay it, but also how these choices interact with the wider UK tax regime.”