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HMRC faces 'challenges' over Scottish income tax HMRC faces 'challenges' over Scottish income tax
(35 minutes later)
Administering the new Scottish rate of income tax when it comes into force next year will present "significant challenges", a watchdog has warned. Administering the new Scottish rate of income tax (SRIT) will present "significant challenges", a watchdog has warned.
In a new report, the National Audit Office (NAO) said it was crucial HMRC maintained accurate address information for Scottish taxpayers. In its report, the National Audit Office (NAO) confirmed the HMRC failed to contact 420,000 people to confirm the accuracy of its records.
It said it was vital to ensure the potential for tax avoidance and evasion was mitigated. HMRC began contacting potential Scottish taxpayers last December.
Holyrood has been given new powers over the income tax rate. But an error in the "design of HMRC's taxpayer identification exercise" meant 420,000 people did not receive letters.
From April 2017, it can set the rates and bands of income tax on non-savings and non-dividend income. The letters were intended to confirm the accuracy of its records of taxpayers who live in Scotland and will pay the new rate in the 2016-17 tax year.
Scotland's Finance Secretary Derek Mackay confirmed in his draft budget last week that he would not replicate the UK Treasury's tax cut for higher earners. After the mistake was discovered, those who had not been contacted received "coding notices" which informed them of the change in their annual tax code, and provided basic information on what is meant by an "S" code.
Mr Mackay said he would not change income tax rates or bands - but the 40% threshold would only rise by inflation, to £43,430 in Scotland. But the audit report found that "by not issuing the same level of information as the 2.45 million taxpayers originally identified in December 2015, HMRC may have created a less informed group of taxpayers".
Holyrood will have full powers over income tax rates and bands from April of next year.
Finance Secretary Derek Mackay confirmed in his draft budget last week that he will not make any changes next year.
Potential problems
But he will not replicate the UK Treasury's tax cut for higher earners, with the 40% threshold only rising by inflation, to £43,430 in Scotland.
The higher tax rate will start at £45,000 elsewhere in the UK.The higher tax rate will start at £45,000 elsewhere in the UK.
Mitigating risk
The NAO report said the "potential for problems" existed when there were different tax thresholds between Scotland and the rest of the UK.The NAO report said the "potential for problems" existed when there were different tax thresholds between Scotland and the rest of the UK.
HMRC will collect income tax payments on behalf of the Scottish government.HMRC will collect income tax payments on behalf of the Scottish government.
The report said HMRC also needed to be able to report the actual amount of Scottish income tax provided to the Scottish government and provide an IT solution that allowed private pension providers to claim relief at source.The report said HMRC also needed to be able to report the actual amount of Scottish income tax provided to the Scottish government and provide an IT solution that allowed private pension providers to claim relief at source.
It said: "HMRC continues to make progress in ensuring that income tax levied under the Scottish rate will be assessed and collected properly, but still faces significant challenges to ensure that all Scottish taxpayers are correctly identified.It said: "HMRC continues to make progress in ensuring that income tax levied under the Scottish rate will be assessed and collected properly, but still faces significant challenges to ensure that all Scottish taxpayers are correctly identified.
"The key challenge to HMRC's delivery of the Scottish Rate of Income Tax (SRIT) is maintaining and updating its record of address details in order to identify Scottish taxpayers."The key challenge to HMRC's delivery of the Scottish Rate of Income Tax (SRIT) is maintaining and updating its record of address details in order to identify Scottish taxpayers.
"Building on work undertaken in previous years to assure the accuracy of its initial Scottish taxpayer population, HMRC continues to mitigate this key risk.""Building on work undertaken in previous years to assure the accuracy of its initial Scottish taxpayer population, HMRC continues to mitigate this key risk."
'Turbulent upheaval''Turbulent upheaval'
The Public and Commercial Services Union, which represents tax workers, said HMRC was "continuing to experience a period of turbulent upheaval".The Public and Commercial Services Union, which represents tax workers, said HMRC was "continuing to experience a period of turbulent upheaval".
It highlighted ongoing "restructuring plans" which could see tax offices in Scotland closed and said these proposals should be put scrapped in order to focus on delivering the changes to the tax system.It highlighted ongoing "restructuring plans" which could see tax offices in Scotland closed and said these proposals should be put scrapped in order to focus on delivering the changes to the tax system.
PCS national officer, Lynn Henderson, said: "The National Audit Office have today laid out the many challenges facing the increasingly shambolic HMRC. Scottish Labour MP Ian Murray said the report raises "serious questions" about HMRC's capacity to administer the new tax powers being transferred to the Scottish Parliament.
"With new devolved powers and the uncertainties of Brexit, the question remains: in a time of such flux, why are HMRC continuing with their programme of office closures? He added: "It is vital that businesses and taxpayers have all the information they need so that such errors are not repeated and that any disruption to taxpayers and future tax revenues is minimised."
"To minimise the challenges outlined in this National Audit Offices, HMRC must halt their current plans to shut offices and actually invest in workers to deliver decent tax services."