Chartered Institute of Taxation Scottish comments on UK Budget

Joanne Walker, Technical Officer for CIOT and its Low Incomes Tax Reform Group said:

Income tax implications for Scotland:

“We knew before today that the Chancellor would freeze income tax thresholds¹. It means that if the Scottish Government follows suit in its budget in December, the level of income that people start paying more income tax in Scotland, compared to the rest of the UK, would stay the same at £27,393.

 “Below this, they will pay less income tax, but because of the upcoming increases in National Insurance (NI) – which impact all income taxpayers –  the amount they will save in Scottish income tax, £21, will in most cases be completely absorbed by the extra National Insurance they will pay from April.

“This means that they would be slightly better off than someone elsewhere in the UK.

“Scottish Ministers have left the door open to the possibility that Scottish income tax thresholds could increase by inflation². If they were to do so, that would represent a tax cut for Scottish income taxpayers relative to the situation in the rest of the UK.”

On the announcement that a lower rate of Air Passenger Duty (APD) rates for UK domestic flights is to be introduced:

“Cutting aviation taxes to boost connectivity used to be the policy of the Scottish Government, but this changed in 2019³.

“We need clarity from UK and Scottish ministers over how and when the issues that have prevented APD from being devolved to Holyrood will be resolved, as well as how the tax will operate in Scotland once it has been devolved and whether the reduced rate announced today would continue.

“This is arguably more urgent given that today’s announcement entrenches apparent differences in policy between the two governments.

“Doing so would give those responsible for administering and collecting the tax certainty over the levels of tax that will be due in Scotland once it has been devolved and allow them to plan ahead with greater certainty.

“It is also difficult to see how cutting APD rates for domestic flights is in keeping with the UK’s climate ambitions, particularly when there are other forms of transport available for most domestic travel”.

On proposals to reduce the Universal Credit taper rate from 63% to 55%, increase the work allowance by £500 per year and increase the NMW to £9.50 an hour:

“The changes to universal credit mean that most working people receiving Universal Credit will keep more of their wages alongside their UC awards. However, those who are out of work or who receive in-work support through tax credits will not benefit from the changes.

 “The rules mean that each claimant’s award is tailored to their specific circumstances, combined with the complicated interactions between tax, national insurance and benefits, not everyone will see the full benefit of the headline figures announced today. 

“The increase to the national minimum wage is significant, but the headline gain of £1,074 a year is reduced to £322 for UC claimants even after today’s announced cut to the taper rate.”

Notes for editors

1. The UK Budget in March 2021 confirmed that the government would ‘maintain personal allowance and higher rate threshold at 2021-22 levels up to and including 2025-26 (page 42)

2. Page 114 of the Scottish Government’s Programme for Government: “Our commitment to freeze Income Tax rates and increase thresholds by no more than inflation for the duration of this Parliament will provide individuals and businesses the certainty and stability they need as we recover.”

3.  The 2016 SNP manifesto for the Scottish Parliament elections stated: “When the power to do so is devolved, we will reduce the overall burden of APD by 50 per cent, with the reduction beginning in April 2018 and delivered in full by the end of the next Parliament. Air Passenger Duty will be abolished entirely when resources allow”. Details on the Scottish Government’s policy towards Air Passenger Duty/Air Departure Tax can be found on the Scottish Government’s website here.