The Scottish Government has published the Scottish Budget 2019-20.
*UPDATE*: Finance Secretary Derek Mackay has reached an agreement with the Scottish Green Party to support the Scottish Budget at all parliamentary stages. The proposals are dependent on securing the support of the Scottish Greens on Stage 1, Stage 2 and Stage 3 of the Budget Bill, as well as support for the Local Government Finance Order, and ensuring that the Scottish Rate Resolution and Non-Domestic Rates orders pass successfully through parliament.
In early 2019, the Scottish Government will bring forward primary legislation to deliver other Barclay Review recommendations including measures to support growth, to improve administration of the system and increase fairness, such as the shift to a three yearly revaluation cycle and policies to address known tax avoidance tactics around second homes, charities and empty properties. The Barclay Review has also recommended the removal of rates relief for independent schools. Read more here.
Scottish Income Tax
The Scotland Act 2016 conferred on the Scottish Parliament the power to set all income tax rates, and the thresholds of bands that apply to the non savings non dividend (NSND)income of Scottish taxpayers. The Scottish Government receives all NSND revenue raised from Scottish taxpayers.
Income tax remains a partially devolved tax. The responsibility for defining the income tax base, including the setting or changing of income tax reliefs and exemptions (including the Personal Allowance), continues to rest with the UK Government. Income
tax on savings and dividends continues to be paid to the UK Government, at the rates and bands it sets. HMRC is responsible for the collection and management of Scottish income tax. The Scotland Act 2016 defines a Scottish taxpayer as someone who is a UK taxpayer and has their main place of residence in Scotland.
As part of the 2018-19 Budget, significant changes to Scottish income tax were announced with the introduction of two new bands and a change to some rates. A commitment was made that this new structure of income tax should be seen as settled for the remainder of the Parliament, and as such this budget makes no changes
to rates, and does not introduce or remove any bands.
The table below sets out the Scottish Government’s proposed rates and bands for 2019-20.
|Scottish bands||Band name||Scottish rates (%)|
|Over £12,500* – £14,549||Starter||19|
|Over £14,549 – £24,944||Basic||20|
|Over £24,944 – £43,430||Intermediate||21|
|Over £43,430 – £150,000**||Higher||41|
HM Treasury has previously confirmed that although the income tax bands differ from the UK rates, for practical reasons charities should continue to claim Gift Aid relief at UK basic rate whether the donor was or was not a Scottish taxpayer. HM Treasury officials have also provided information for those donors that wish to claim higher rate relief. Read more here.
Office of the Scottish Charity Regulator priorities
In 2019-20, the Office of the Scottish Charity Regulator (OSCR) will:
- ensure public confidence in charities through effective regulation and sharing of
- support charity trustees to understand and comply with their legal duties
- facilitate effective management via straightforward and proportionate reporting
(increasing online services where appropriate)
- investigate apparent misconduct in charities, taking remedial or protective action as appropriate.
OSCR’s budget for 2019-20 will be £3.3m, compared to £3.0m in 2018-19.
Value Added Tax assignment
The Scotland Act 2016 provided for the first 10 pence of the Standard Rate of Value Added Tax (VAT), and the first 2.5 pence of the Reduced Rate, to be assigned to the Scottish Government. The assignment of VAT will be based on a model that will estimate
expenditure in Scotland on goods and services that are liable for VAT. The draft model for calculating Scottish VAT receipts has been published, and finalising the model will be discussed through the Joint Exchequer Committee in spring 2019.
The Scottish Government will continue to monitor the methodology in advance of a final agreement, including a focus on the robustness of the data that underpins it and the potential level of undue votality which may be associated with its operation.
2019-20 will be a transitional year, where VAT assignment will be forecast and calculated, but with no impact on the Scottish Government’s Budget. From 2020-21, provided both Governments are assured that the assignment methodology is working effectively, the Scottish Government’s Budget will be determined by forecast and final estimated VAT receipts in Scotland and corresponding block grant adjustment. The Scottish Fiscal Commission will forecast Scottish assigned VAT receipts.4