Scottish income tax receipts were £0.5 billion (US$0.56 billion) less than expected for 2016/17, mainly because of an error in calculating the number of high-rate tax-payers.
In May, the Scottish Fiscal Commission said it expected income tax liabilities of £11.3 billion (US$12.66 billion) for 2016/17. However, outturn data from HMRC – the first to be published since the tax was devolved – has shown that income tax receipts in 2016-17 were £10.7 billion (US$11.99 billion).
The commission said it believed the reason for the shortfall was that the number of additional and higher rate income taxpayers was lower than previously believed. It added that last month’s upward revisions to GDP figures, which it described as 'exceptionally large', would not significantly change the medium to long term view of the Scottish economy.
"While the revised estimates of GDP indicate a growth rate above the commission’s most recent forecast, we believe the outlook for the economy remains largely unchanged, with trend growth in Scotland remaining subdued," said commission chair Dame Susan Rice.
The Fraser of Allander Institute said the difference between the predicted and outturn income tax figures would provide food for thought for forecasters, but would have no immediate impact on the Scottish budget.
"The key driver of the Scottish budget in 2017/18 and beyond is the extent to which Scottish income tax revenues per capita grow faster or slower than the corresponding income tax revenues in the rest of the UK – not the size of the initial baseline," it said.
A government spokesman told Public Finance that it was only to be expected that the forecast would differ from outturn data, which was why the Scottish budget was protected from any such change.
“Our income tax policy change for 2018-19 has raised additional revenues to help us reverse the impact of the UK government’s austerity drive, protect our public services and support the Scottish economy," he said. "We have done this whilst ensuring that, for the majority of income tax payers, Scotland is the lowest taxed part of the UK this year."
Meanwhile, the House of Lords Economic Affairs Finance Bill Sub-Committee is seeking contributions to its inquiry into the draft Finance Bill 2018. The inquiry will examine which principles should underlie the design of HMRC powers, and where the balance should be struck between the taxpayer and the tax authority.
It will consider how HMRC powers should be differentiated to reflect the different problems of error, sophisticated tax avoidance, and deliberate tax evasion, and will also examine how well HMRC, businesses and software providers are prepared for the implementation of Making Tax Digital for VAT in April 2019, along with the challenges of preparations for Brexit.
"HMRC’s powers to tackle tax avoidance and tax evasion have expanded exponentially in recent years. The Sub-Committee will investigate the practical impact of these new powers on the taxpayer," said Lord Forsyth of Drumlean, chairman of the Economic Affairs Finance Bill Sub-Committee.
"We will also consider whether Making Tax Digital for VAT is on track for introduction in April 2019, and whether sufficient support for businesses will be in place in time."
The deadline for the submission of written evidence is 1 October 2018.
Source: Public Finance
Scottish income tax receipts were £0.5 billion (US$0.56 billion) less than expected for 2016/17, mainly because of an error in calculating the number of high-rate tax-payers.
In May, the Scottish Fiscal Commission said it expected income tax liabilities of £11.3 billion (US$12.66 billion) for 2016/17. However, outturn data from HMRC – the first to be published since the tax was devolved – has shown that income tax receipts in 2016-17 were £10.7 billion (US$11.99 billion).
The commission said it believed the reason for the shortfall was that the number of additional and higher rate income taxpayers was lower than previously believed. It added that last month’s upward revisions to GDP figures, which it described as 'exceptionally large', would not significantly change the medium to long term view of the Scottish economy.
"While the revised estimates of GDP indicate a growth rate above the commission’s most recent forecast, we believe the outlook for the economy remains largely unchanged, with trend growth in Scotland remaining subdued," said commission chair Dame Susan Rice.
The Fraser of Allander Institute said the difference between the predicted and outturn income tax figures would provide food for thought for forecasters, but would have no immediate impact on the Scottish budget.
"The key driver of the Scottish budget in 2017/18 and beyond is the extent to which Scottish income tax revenues per capita grow faster or slower than the corresponding income tax revenues in the rest of the UK – not the size of the initial baseline," it said.
A government spokesman told Public Finance that it was only to be expected that the forecast would differ from outturn data, which was why the Scottish budget was protected from any such change.
“Our income tax policy change for 2018-19 has raised additional revenues to help us reverse the impact of the UK government’s austerity drive, protect our public services and support the Scottish economy," he said. "We have done this whilst ensuring that, for the majority of income tax payers, Scotland is the lowest taxed part of the UK this year."
Meanwhile, the House of Lords Economic Affairs Finance Bill Sub-Committee is seeking contributions to its inquiry into the draft Finance Bill 2018. The inquiry will examine which principles should underlie the design of HMRC powers, and where the balance should be struck between the taxpayer and the tax authority.
It will consider how HMRC powers should be differentiated to reflect the different problems of error, sophisticated tax avoidance, and deliberate tax evasion, and will also examine how well HMRC, businesses and software providers are prepared for the implementation of Making Tax Digital for VAT in April 2019, along with the challenges of preparations for Brexit.
"HMRC’s powers to tackle tax avoidance and tax evasion have expanded exponentially in recent years. The Sub-Committee will investigate the practical impact of these new powers on the taxpayer," said Lord Forsyth of Drumlean, chairman of the Economic Affairs Finance Bill Sub-Committee.
"We will also consider whether Making Tax Digital for VAT is on track for introduction in April 2019, and whether sufficient support for businesses will be in place in time."
The deadline for the submission of written evidence is 1 October 2018.
Source: Public Finance
