Millions spent on taxation system Scots never used

MILLIONS of pounds from Scotland's budget were paid to HM Revenue and Customs to set up a tax system which was never used, it has emerged.

As a result of technology changes at HMRC, a Scottish government will have to fork out millions more if it wants to charge a different rate of tax.

The Scottish Parliament has never made use of its powers to vary the basic rate of income tax by 3p in the pound.

Sources say under an agreement which expired in 2007, the previous Scottish Executive paid HMRC 12 million to set up the necessary systems to identify Scottish taxpayers and a further 50,000 a year to maintain the project.

The current Scottish Government did not renew the agreement when it came to power in 2007 because it did not plan to use the powers.

Within the next few weeks, the UK Government is expected to publish the Scotland Bill, implementing proposals by the Calman commission to give Holyrood wider tax powers.

In the meantime, sources say there have been "significant changes to HMRC's IT platforms" which mean the Scottish Government would have to pay for completely new systems to identify Scottish taxpayers.

A Scottish Government source said: "The previous Executive originally paid some 12m to establish the infrastructure necessary to deliver the Scottish variable rate and then an annual fee of 50,000 until 2007 to ensure the maintenance of the project.

"Since then there have been significant changes to HMRC's IT platforms. HMRC won't give us a figure for what it will cost to do the set-up exercise again, but it will be significantly more than restarting the 50,000 annual fee."

Under the proposals from the Calman commission, the Scottish Parliament would take responsibility for the top 10p of income tax in all bands, so the block grant received from Westminster would be reduced by that amount and MSPs would have to decide whether to impose that 10p or more or less. But Holyrood would have no power to change the tax bands or levy different amounts on the different bands.

The SNP opposes the change, saying that changes to personal allowances, decided by Westminster, could mean significant reductions in the amount the Scottish Parliament receives.

A Scotland Office spokesman said talks were under way with HMRC about implementation of the new tax powers so it could be done in the simplest way possible. He confirmed there would be a similar arrangement to pay for the costs of the new system, involving money from Scotland's budget going to HMRC for the identification of Scottish taxpayers.