HMRC to target cross border Scots tax avoiders

HM Revenue and Customs is planning to crack down on wealthy Scots who change their addresses to south of the Border in an attempt to avoid the new Scottish rate of income tax.

Picture: John Devlin

A document presented by HMRC to MSPs on Holyrood’s finance committee outlines the work being taken by HMRC ahead of the introduction of new powers over income tax coming to Edinburgh.

Although the Scottish Government has yet to declare what income tax policy it will pursue finance secretary John Swinney has indicated he is in favour of “progressive” taxation.

The prospect of high earners being subjected to higher taxes north of the Border has led to suggestions that the wealthy will be tempted to switch their residences south for tax purposes.

This was acknowledged by the HMRC document.

“If the Scottish rates diverge from the rates which apply elsewhere in the UK, there will be an incentive for taxpayers to claim that they live on one side of the bBorder, when they live on the other,” the document said before warning that the taxman would keep an eye on cross border activity.

“HMRC will use external data to highlight changes of address, and identify high-risk cases such as mobile employees and taxpayers with high incomes and will undertake appropriate compliance activity to address any risks that arise.

“HMRC is already undertaking preparatory work in these areas. Additionally, it is worth noting that, as HMRC continues to work on reducing the overall tax gap and bring more individuals into the tax system, this will increase overall revenues, including those paid at the Scottish rate.”

Last night the Scottish Conservative enterprise spokesman Murdo Fraser said the work undertaken by HMRC illustrated the difficulties that could arise from having differing tax rates north and south of the Border. He also underlined his party’s commitment not to raise Scottish taxes higher than those in the rest of the UK.

Mr Fraser said: “Whilst any attempts at tax avoidance cannot be condoned, this situation illustrates the difficulties that will be presented if the SNP were to raise taxes in Scotland higher than the rest of the UK.

“Inevitability tax differentials will lead individuals to try and order their affairs in the most tax efficient manner.

“The Scottish Conservatives are committed to ensuring that taxes in Scotland will be no higher than the rest of UK.”  

The document also revealed the Scottish Government would have to pay the taxman around an extra £4 million to collect income tax if a different rate was set north of the Border. From April next year, income tax will be cut by 10p in £1 across the basic, higher and additional bands in Scotland.

The Scottish Government will set its own Scottish Rate of Income Tax.

The document said: “If the SRIT is set at 10 per cent, the running costs are estimated to be £2m-£2.5m. If the rate is set at a figure other than 10 per cent, the figure is estimated to be £5.5m-£6m.”

It also disclosed that HMRC is working with the Scottish Government “on the possibility of being able to access information” from NHS Scotland records.

Although not able to do so “at this point in time”, HMRC said it was satisfied that it could implement the new income tax powers without access to NHS data. A Scottish Government spokesman confirmed the HMRC had made assurances that it had confidence in its information without access to NHS data.