Scottish income tax policy 2019/20

This afternoon, Mr Mackay set out the proposed income tax parameters for 2019/20 in the draft Budget.

These are shown in the table at the bottom of this blog, together with last year’s policy and the 2019/20 UK policy.

Mr MacKay said that 99% of Scottish income taxpayers will pay less tax in 2019/20 than they did in 2018/19.

This statement is correct in the sense that, in 2019/20, 99% of taxpayers will benefit from a higher tax-free personal allowance**, (and to a lesser extent the Scottish Government’s increase in the thresholds for the basic and intermediate rates).

What about comparisons with the rest of the UK? Mr Mackay pointed out that 55% of Scottish taxpayers will pay less income tax than rUK taxpayers with equivalent income.

This is true in that the 19% Starter Rate in Scotland means that those with income less than £27,000 (slightly above the Scottish median income) will pay less tax than rUK counterparts.

It is worth bearing in mind however that the difference between Scottish and rUK tax liabilities at this end of the income distribution is small – the maximum benefit to Scottish income taxpayers is just over £20 per year.

Some examples of the difference in liabilities for different salaries are given in the diagram below.

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December 12, 2018

Windfalls, dilemmas and deals: looking ahead to the Scottish budget

Wednesday’s Scottish Budget announcement will almost certainly play second fiddle to Brexit as a news story, and justifiably so given the significance of the UK’s future relationship with the EU.

But the Scottish budget is important too, and not just because it tell us how much income tax and council tax we can expect to pay next year. It also sets the direction of devolved public spending in Scotland, which, when set alongside budgets of previous years, is beginning to tell a story of substantial change in the way in which devolved public spending is distributed across public services.Continue reading

December 10, 2018

VAT Assignment – A bridge too far for fiscal devolution?

Alongside this month’s Budget, the Scottish Fiscal Commission will set out forecasts for VAT revenues in Scotland.

2019-20 will mark the first year in which VAT assignment will be explicitly incorporated into the Budget (although, as with all the phased implementations of Scotland’s new tax powers it will be 2020-21 before it has a meaningful implication for spending).

In this blog we remind readers of the background to VAT assignment, discuss the approach that has been put forward for implementation and outline some implications for the Scottish Budget.

Working out how much VAT is raised in Scotland is exceptionally difficult. Unfortunately, a paper published recently by the UK Government on how it plans to do this suggests that little progress has been made in finding a robust way forward after over 3 years of trying.

Given the sums involved, the Scottish Parliament would be taking on a significant – and unreasonable – risk based upon current plans. It should, at the very least, press for a delay in the assignation of VAT to the Scottish Budget.Continue reading

December 6, 2018

What’s next for taxpayers in Scotland?

We’ll soon find out what the Scottish Government has in store for income tax in Scotland in 2019/20 when the Scottish Budget is published next week.

Taxpayers in the rest of the UK already know what to expect after Chancellor Philip Hammond announced changes to income tax in the UK Budget at the end of October.

These were to:

  1. increase the personal allowance from £11,850 in 2018/19 to £12,500 in 2019/20
  2. to increase the Higher Rate Threshold in the rest of the UK from £46,350 to £50,000.

As it is entirely possible that readers might not have made it through our 160 page Budget report on the 8th November, this blog will set out some tax options available to Mr Mackay for the forthcoming year.

Before we do so, here is a summary of the differences between Scottish and rUK taxpayers in the current financial year.

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December 5, 2018

Key points from our 2018 budget report

Today we publish our annual Budget report, “Scotland’s Budget 2018” which is available at the following link.

The aim of the report is to set out the opportunities, risks and choices facing the Scottish Government as it prepares it draft budget for 2019/20. The report covers the outlook for the Scottish economy and the Scottish budget.

Each year we also focus on a variety of longer term public finance questions. This year we focus on the options for reforming taxes and introducing new taxes, and discuss the differences in the funding of higher education between Scotland and England.Continue reading

November 8, 2018