Public ‘ignorance’ over Holyrood income tax powers

THE vast majority of people have little idea that income tax powers are to be transferred to Scotland next year, despite it being one of the most significant developments in the history of Scottish devolution.

An HM Revenue & Customs (HMRC) study has found widespread ignorance of the change among individuals and even business owners.

Out of 85 people who took part in a range of focus groups, just one knew about the change, which will allow Holyrood to set the thresholds and rates of income tax in the country and keep the revenue.

Awareness among individuals is “very low”, and small and medium-sized firms have  “little” idea about the transfer of powers, which will establish a Scottish rate of income tax (SRIT).

With only seven months until the new Scottish rate is due to come into effect, it suggests few people have any understanding of what it will mean in practice.

Last week, it emerged that the transfer of taxation powers may not take place in time for John Swinney, the finance secretary, to announce the Scottish rate when he presents his budget to Holyrood in January.

The Chartered Institute of Taxation (CIT), the leading body for UK taxation professionals, has warned that there is a need for an effective publicity campaign to coincide with the announcement of the SRIT so that employers and taxpayers are not adversely affected.

The HMRC study, carried out with market research agency Ipsos Mori, found that it was common for most individuals questioned to “express surprise that they hadn’t been aware that a major change to income tax was happening”.

It said that although larger employers were more aware than their smaller counterparts, in some cases knowledge of the SRIT was “vague”.

Embarrassingly, HMRC was even forced to redraft a basic description of the SRIT because of “confusion” and people being unclear about the current tax system and the planned changes.

One main area of concern among those who took part in the study was how the new tax would affect mobile workers who resided in England but spent weekdays working in Scotland, staying in hotels or guest houses. Those individuals, the report states, “still felt the SRIT might affect them if their nights in Scotland were considered ‘resident’.”

It added: “Feedback from individuals suggests that decisions on where people live and work may be influenced by how any increase in the rate is explained, particularly if higher taxation funds improved public services.”

Moira Kelly, chairwoman of the CIT’s Scottish technical sub-committee, said not enough was being done to promote the change and it remained vital that taxpayers were given more information about the new rate at an early stage. She said: “Its introduction represents a significant change for employers and taxpayers who remain in limbo until the announcement. They will need to be privy, at an early stage, to the requisite level of information to know exactly who will be affected and how.”

It comes just days after HMRC risk analysis showed that the potential failure of identifying Scottish taxpayers as part of the changeover remained an area of significant concern. The delay could mean that there is not enough time for Scottish taxpayers to be informed of the rate they are paying, possibly leaving the new system in chaos.

An HMRC spokesman said it will write to individuals identified as Scottish taxpayers ahead of SRIT’S introduction, adding: “We are increasing the level of contact with businesses, and will use email alerts, Twitter, intermediary groups representing this audience and forums to highlight when the information is available.”

A Scottish Government spokesman said: “There has been good progress in preparing to implement the Scottish rate of income tax. HMRC … has a clear strategy for engaging with Scottish taxpayers later this year.”