Tax-raising powers rely on ‘trust’

SCOTTISH FINANCE officials work on a “trust but verify” basis with the UK tax authority in their discussions on Scotland’s new tax-raising powers, MSPs have heard.

The new Scottish rate of income tax (SRIT) will allow Holyrood to vary income tax by 10p in the pound, but officials still do not know how accurate the database of Scottish taxpayers will be, Holyrood’s public audit committee heard.

HM Revenue & Customs (HMRC) officials have no binding obligation to appear before MSPs, and Scottish auditors face legal impediments to accessing information.

Concerns were raised that a rise in SRIT could see a reduction in Scottish taxpayers, or a tax cut could see more people registering in Scotland, making robust monitoring of the tax base crucial.

There are also fears HMRC could see Scotland’s estimated £4.5 billion share of the £112bn UK tax bases as “small potatoes”, heightening the need for Scottish scrutiny.

Finance directorate principal policy analyst Jonathan Sewell said: “Elements of this project require an in- depth working knowledge of HMRC’s tax systems, and we are reliant on HMRC in the first instance on that. What we add is scrutiny of what they are doing, but we have to take some of the work that they do on trust.”

Committee convener Hugh Henry said: “If you are telling us that you are operating on the basis of trust, then it would suggest that you actually don’t have access to all the facts.”

Auditor General Caroline Gardner said: “HMRC has strong protections around taxpayer conf identiality which mean that we wouldn’t have access to taxpayer records.

“The most important aspects for this committee to pursue would be the way Scottish taxpayers are being identified and maintained.”

She said the accuracy of SRIT receipts and the Scottish taxpayer database are “at the heart of what we are trying to resolve”, but that they “don’t yet know” how accurate the database will be.

Mr Sewell said: “As to the certainty of what the final number would be I couldn’t tell you at this point, but clearly we are driven by the incentive to know the total number of Scottish taxpayers as well as we can.”