THE transfer of income tax powers to Scotland may not be ready in time for Finance Secretary John Swinney to announce the Scottish rate when he presents his Budget to Holyrood in January, a risk analysis by HM Revenues and Customs (HMRC) has warned.
Papers obtained by The Scotsman have revealed that the last available monthly analysis carried out by HMRC in July has identified a series of significant concerns ahead of the new Scottish rate of income tax (SRIT) coming into force in April - one of the most important developments in the history of Scottish devolution.
There is a risk that the Scottish taxpayer notification cannot be issued as the Scottish rate is not set in timeIan Murray
The delay could mean that there is not enough time for Scottish taxpayers to be informed of the rate they are paying, potentially leaving the new system in chaos.
The analysis is part of the work being carried out by HMRC, the UK Government and Scottish Government to have the new tax rate in place from next April following on from the Calman Commission proposals agreed in the Scotland Act 2012 which gives Holyrood control of 10p of the 20p basic rate.
They are also a precursor to the even more significant powers in the current Scotland Bill powers from the Smith Commission which will give Holyrood control over all income tax on wages and earnings north of the Border including an ability to vary the UK bands.
The papers, which emerged following a freedom of information request by Labour’s shadow Scottish Secretary Ian Murray, have shown that a failure to be able to identify Scottish taxpayers remains a significant concern.
While the issue has been slightly marked down from 18 out of 20 to 17 taking it from red alert to high amber, it remains the top issue in being able to operate the Scottish income tax.
Of more concern the analysis also introduced another risk in November: “There is a risk that the Scottish taxpayer notification cannot be issued as the Scottish rate is not set in time.”
This was also marked at 17 and has not been downgraded for nine months.
It means that HMRC fear the arrangements for the Scottish income tax will not be properly in place for Mr Swinney to identify a Scottish rate and for taxpayers north of the Border to be issued with notices afterwards.
The revelations follow a meeting of the Joint Exchequer Committee meeting on Friday chaired by Mr Swinney who insisted he was satisfied with the progress being made.
Mr Murray called on the two governments to “get a grip” on the issue with time running out.
He also suggested that ongoing rows and distrust between the Scottish and UK governments was at the heart of the problem.
He said: “Scotland is about to embark on an important new phase of devolution. This time next year, the Scottish Government will be more powerful than it ever has been.
“It’s not good enough for either of our Governments to blame each other for these problems. They have shared responsibility for the delivery of these new powers, and shared responsibility to make sure they are fully operational next year.”
He went on: “It’s concerning that just seven months away from the deadline, it still looks like there are unresolved problems. It is time for the UK and Scottish Governments to get a grip.
“We need a public information campaign about these new powers for individuals and businesses as soon as possible and people across Scotland need to have the confidence that everything will be operating effectively on day one.”
He added: “This is too important to be held up by political differences. That will only harm tax payers across Scotland.”
However, spokesmen for the two governments insisted that the “transition was on track.”
A UK Government spokesman said: “Preparations are on track to bring the Scottish rate of income tax into effect from April 2016 as planned, at which point the Scottish Government becomes responsible for setting the level.”
Last week it was revealed that Mr Swinney had delayed his draft Budget from the end of the year to January because of the UK Government’s spending review.
But a Scottish Government spokesman insisted that Mr Swinney will be able to identify the Scottish rate of income tax.
He said: “There has been good progress in preparing to implement the Scottish rate of income tax.
“As Scottish taxpayer status is determined by main place of residence in the UK, HMRC will use the addresses it holds in its records to identify taxpayers who live in Scotland.
“No definitive list of Scottish residents exists and HMRC will continue checking its address data against third party information to check accuracy.”
He went on: “The Scottish Government will propose a Scottish rate of income tax as part of its budget setting process for 2016-17.
“The later than expected 2015 UK Spending Review means that we will not know what block grant will be available to Scottish Ministers until November 2015, although it is clear that we face significant further austerity over the coming years.”
He added: “The latest risk register reflects growing confidence in the effectiveness of HMRC’s plans to identify Scottish taxpayers, while there has been a fall in estimated total costs of implementing SRIT.”