Devolved Taxes

Wed 08 Jan 2014

Revenue Scotland and Tax Powers Bill

Two taxes will be devolved to Scotland with effect from 1 April 2015, regardless of the outcome of the Scottish referendum: SDLT and landfill tax. The Land and Buildings Transaction Tax (Scotland) Act 2013 received Royal Assent on 31 July 2013. The Landfill Tax (Scotland) Bill is proceeding through the Scottish Parliament.

The latest news is that a further tax bill, the Revenue Scotland and Tax Powers Bill, was introduced in the Scottish Parliament on 12 December 2013.

This Bill, which will be enacted as the Revenue Scotland and Tax Powers Act 2014 (RSTPA) sets up the framework for the devolved taxes. It will:

• Formally establish Revenue Scotland as a body corporate (Revenue Scotland will function as a non-ministerial department);
• Require Revenue Scotland to produce a Charter of standards expected of Revenue Scotland and standards expected of taxpayers in discharging their responsibilities as regards the devolved taxes;
• Set up a first tier and upper tax tribunal;
• Enact a general anti-avoidance rule;
• Make provisions for tax returns including powers to amend and time limits for assessing and to impose penalties and interest.

In the light of the considerable debate on nuances of the GAAR as enacted in FA 2013, what is proposed for RSTPA is a general anti-avoidance rule (GAAR). Commenting on the clause that introduces the GAAR, the notes to the Bill state: “Although the terms ‘avoidance’ and ‘abuse’ do not have exact definitions, avoidance generally refers to a spectrum of activities designed to reduce tax liability, while abuse is often used to describe highly contrived schemes.” and “The GAAR is intended to operate in tandem with Targeted Anti-Avoidance Rules (TAARs) and the ‘Ramsay principle’ of purposive statutory interpretation applied by the Scottish courts and tribunals.’ Much of the detail of the GAAR provisions in RSTPA is a straight lift from FA 2013. However an anti-avoidance rule, not an anti-abuse rule, is proposed and this would indicate that it may be applied more widely than the FA 2013 GAAR. However the GAAR in the RSTPA will only apply to the two devolved taxes.

There will be further changes in 2016, with the introduction of the Scottish rate of income tax (SRIT). It will thus be necessary to establish those taxpayers who are Scottish-resident for the purpose of this tax when it comes into force. Broadly speaking, this will be those people with a ‘close connection’ with Scotland, as defined.

Draft Wales Bill

A similar process in underway in Wales with the publication of the draft Wales bill, which also devolves stamp duty land tax and landfill tax. There will also be partial devolution of income tax.