HMRC: Scotland Act could spark ‘exodus’ over tax

It has been described as the biggest transfer of powers in the UK in 300 years and will see income tax effectively cut in Scotland by 10 pence, with Holyrood then responsible for raising it back up the required level in line with need.

Former Liberal Democrat leader Tavish Scott said that “as soon as there is variance” in the tax rates, the tax authorities will be faced with a “greater challenge.”

Sarah Walker, Deputy Director and Head of Devolution Team, HM Revenue and Customs said the mechanics should be “straightforward” with the tax rate set in the Autumn of the year by the Scottish Government then fed into the PAYE and self-assessment systems.

But she added: “Clearly if there’s a different rate in Scotland compared with the rest of the UK then the risk it faces for compliance will also have to take into account that there is now an incentive for people potentially to want to be classified on one side or the other side of the Border.

“We will need to look at if there’s a sudden flood of people reporting changes of addresses, that’s a risk we would need to look into. There might be more people who have two addresses and now tell us they spend more time in one or the other.

“There will be issues there and one of the things we need to develop in our compliance code is how we would actually deal with that.”

But she insisted the HMRC has a range of data sources which allow them to check addresses when the system is being set up.

“We will be discussing that approach with the Scottish Government,” she added.

“If we get thousands and thousands of people suddenly telling us they’ve moved from one side of the border that would certainly be noted.”