#ScotBudget: Industry reacts to Mackay’s ‘safe budget’

Industry bodies welcomed the Scottish Government’s first budget since the devolution of substantial tax powers yesterday, while noting few major announcements in the area of taxation.

The Chartered Institute of Taxation (CIOT) said the draft budget highlighted the tricky challenge of investing in public services while seeking to maintain a competitive tax base.

Moira Kelly, chair of CIOT Scotland’s technical committee, said: “For all of the substantive new powers over taxation devolved to the Scottish Parliament, this was a ‘safety first’ draft budget with only the most tentative signs of divergence between Scotland and the rest of the UK.

“It is a position which neatly illustrates the tricky challenge faced by the Scottish Government in balancing responsibility for tax-raising powers and investing in public services while seeking to protect the country’s revenue base.”

She added: “Nevertheless, the Finance Secretary has today confirmed that there are important changes underway in the tax dynamic between Scotland and the rest of the UK that businesses, individuals and tax professionals will need to prepare for in advance of next April.

“In particular, the decision to restrict increases in the rate at which people start paying the higher rate of income tax to inflation only, is likely to represent the first noticeable sign of disparity between the amount of tax paid by workers in Scotland and the rest of the UK. This change is likely to have implications for HMRC’s ongoing work identifying Scottish taxpayers and ensuring that they are aware of (and comply) with their new tax obligations.”

Ian McCall, global employer services partner at Deloitte, urged employers north and south of the border “to review their employee population to identify any Scottish taxpayers and consider whether any amendments to their existing payroll, tax processes, and policies for these employees need to be made”.

Cara Heaney, executive director of people advisory services at EY in Scotland, said it was already unlikely that substantial tax changes for Scotland would be announced yesterday.

Ms Heaney said: “Arguably, in the last few years there have been major changes to Pay As You Earn systems and processes which have taken time to implement. It would have been a tall-order, and unlikely that further and substantial alterations were going to be revealed today for introduction in April.

“In addition, Scotland’s budget depends increasingly on the performance of the Scottish economy. Understanding and forecasting that performance accurately will be critical to informing policy decisions on the use of Scotland’s devolved tax powers. While the Scottish Fiscal Commission is not yet fully operational it will be next year’s budget when the potential for more significant change to income tax becomes more likely.”

However, James Paterson, director and property tax expert at BDO LLP, said the Scottish Government could have done more to stimulate Scotland’s property market.

No proposals were announced to alter the rates or bands at which Land and Buildings Transaction Tax (LBTT) are payable and the Government forecast that revenues from the tax will rise from £507m in 2017-18 to £624m in 2021-22.

Mr Paterson said: “It is disappointing that the Government has not seized the opportunity to alter the bands at which LBTT becomes payable, and in particular in relation to properties above the £325,000 mark above which the rate of LBTT reaches 10 per cent.

“Given the reported decrease in activity levels in this part of the market, Derek Mackay could have used this budget to stimulate activity.”