WHAT WOULD A SEPARATE SCOTTISH TAX SYSTEM MEAN FOR EMPLOYERS?

GORDON BROWN AND DAVID CAMERON HAVE PROMISED GREATER DEVOLUTION OF TAX AND WELFARE POWERS TO SCOTLAND.

With the amount of coverage for the Scottish vote today it can’t have gone unnoticed that Scotland is remaining a part of the UK – for now. But that doesn’t mean that there aren’t changes ahead for UK businesses, as Gordon Brown and David Cameron have promised greater devolution of tax and welfare powers to Scotland.

Alex Salmond says that the time-table is agreement on what to devalue by November and a draft bill in January so it can be enacted before next May’s General election.

Robert Maas, tax partner at CBW, comments on the news: “A separate Scottish tax system could be a nightmare for employers who have staff in both countries. How much of a nightmare depends on what system the Scottish parliament introduces.

“If it mirrors the UK system other than in respect of tax rates, the only problem – apart of course from the problem of having to run two payrolls – will be in deciding where a worker is resident. In most cases this will be obvious as most people live in one place. But what about the Englishman who lives in his house in Carlisle at weekends and his flat in Dumfries during the week?  Whose tax will he have to pay?

“If Scotland were to introduce a different tax or social security system to England, the problems would be immense. If they have a different residence test, a lot of people could be resident in both countries. If the definition of taxable income is different, an employer will need to understand both systems to be able to determine what to tax.

“Even if it is some, but Scotland were to have a more complex scale of rates or system of personal allowances, an employer will have to hope that the Scottish tax authority will produce tax tables in the same way as HMRC.

“And of course staff morale could become a problem too. Many people look at their monthly take-home pay rather than headline gross earnings. If Ian who lives in Scotland has a lower take-home pay than John at the desk next to him who lives in England, will he become demotivated? Will he expect his employer to bridge the gap?

“Actually, some tax powers have already been devolved. The Scottish parliament has had power since 1998 to alter the basic rate of income tax for Scottish taxpayers, but has never used it. SDLT is being devolved and in Scotland will be replaced by a new Land Tax from next April. Hopefully what Scotland really wants is to keep more the taxes raised in Scotland than to change the basis of taxation.”