What to expect on Budget day - Vishal Chopra

On Thursday, Kate Forbes will stand in Holyrood to deliver the Scottish Budget. The proposed doubling of the Scottish Child Payment to £20 from April 2022 has already generated headlines, but what else might we expect from a tax perspective in the Finance Minister’s speech?

Vishal Chopra, Head of Tax in Scotland – KPMG UK
Vishal Chopra, Head of Tax in Scotland – KPMG UK

The first Scottish Budget in two years to be delivered after the corresponding UK Budget represents at least one return to normality. However, rising inflation, challenging business conditions and issues around climate and the pandemic mean this is a Budget which remains some way from feeling like business as usual.

Kate Forbes’ focus will be on stability for post-pandemic rebuilding: consulting on how devolved taxes might support meeting net zero by 2045 and delivering continued support for businesses.

Following COP26, we expect the environment to be at the forefront of the Scottish Government’s thinking, with consideration given to how devolved tax powers could support moving to a lower carbon economy and encourage consumers and businesses to operate more sustainably. This could include changes to Land & Buildings Transactions Tax to encourage environmentally friendly improvements, or an update on the devolved Air Departure Tax – formally on the statute books but not yet introduced due to EU state aid issues.

Additionally, the UK government’s recently launched review to ensure Landfill Tax in England and Northern Ireland continues to support its environmental objectives, might prompt a similar review of the Scottish tax.

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As businesses focus on re-building post pandemic, a quiet Budget with measures which support their recovery will be welcomed.

100% relief from Business Rates has been available for certain Scottish businesses in retail, hospitality and leisure for 2021/22, and we expect some relief to continue, especially given concerns around the Omicron variant and the 50% business rate cut for shops, restaurants and gyms available in England.

While it’s been confirmed that current rates and bands for residential Land and Buildings Transaction Tax will be maintained, there could be news on the promised Additional Dwelling Supplement review, and potential relief for housing co-operatives.

Formalising the “care and maintenance” of the Scottish tax system in an annual Scottish Finance Bill, allowing for enhanced scrutiny and visibility, would also be roundly welcomed by Scotland’s business community.

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We expect further details on the Citizens’ Assembly to discuss Council Tax reform, which is likely to consider how changes could support the Government’s objectives of creating a fairer and greener economy.

And for personal income tax, we expect that any changes to Scotland’s distinctive five band system are likely to be minor – for example inflationary increases to the thresholds – rather than any change in rates. However, the forthcoming UK-wide1.25% Health & Social Care Levy might cause the Scottish government to consider mitigating combined marginal rates above 50% for some Scottish taxpayers.

As attention turns to Holyrood on Thursday, one thing remains certain – this will be a Budget which will look to stabilise Scotland on the route to recovery, and in doing so won’t be able to cater for everything.

Vishal Chopra, Head of Tax in Scotland – KPMG UK

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