What does a “No” vote mean for businesses from a tax perspective?

Scotland has voted against independence. However, it is clear that changes will be made to grant further taxation  powers to Scotland. So, despite the "No" vote, major  changes are still on the horizon which could impact  business in Scotland.

WHAT TAX POWERS DOES SCOTLAND  ALREADY HAVE?

There has already been full devolution to Scotland in  relation to council tax and business rates. Steps have also  been taken to grant certain further tax powers to Scotland.  From 1 April 2015, Scotland will be responsible for:

  • Land and Buildings Transaction Tax (LBTT), which  will replace UK Stamp Duty Land Tax; and
  • Scottish Landfill Tax (SLT), which will replace UK  Landfill Tax.

From 1 April 2016, Scotland will also have powers to set  a Scottish rate of income tax. Scotland already has the  power to vary income tax by up to three pence in the  pound, but has never exercised this right.

WHAT IS LAND AND BUILDINGS TRANSACTION  TAX (LBTT)?

LBTT will replace UK Stamp Duty Land Tax (SDLT) for  property transactions in Scotland. The new rules will  apply to any Scottish real estate transaction completed on  or after 1 April 2015 so long as it occurs pursuant to a  contract entered into on or after 1 May 2012.

HOW IS THE SCOTTISH LBTT DIFFERENT TO  UK SDLT?

The legislation is largely based on the UK SDLT rules.  However, there are a number of differences, notably in  relation to sub-sale relief, licences and the LBTT  calculation on rents. Businesses should seek advice in  relation to Scottish property transactions to determine  how such changes may impact their proposed  transactions, particularly on portfolio purchases including  Scottish property. 

WHAT WILL THE LBTT RATE BE?

The tax rates and bands have not yet been announced, but  it is proposed that LBTT will be calculated on a  “marginal basis” - so there will be progressive rates with  each part of the purchase price being subject to LBTT at a  different rate. There are indications that the top LBTT  rate will be higher than that of SDLT, but this remains  unclear until the rates are announced later in the autumn. 

WHAT IS SCOTTISH LANDFILL TAX?

SLT will replace UK Landfill Tax in Scotland. As with  the UK Landfill Tax, SLT is a tax on disposals to landfill  and the aim is to compensate for any impact on the  environment from unsustainable production and  consumption. The rate of SLT will be set by the Scottish  Government and the tax will be collected and  administered by Revenue Scotland (Scotland's newly  established tax authority). 

WHAT POWERS WILL SCOTLAND HAVE IN  RELATION TO INCOME TAX? 

The Scottish Parliament will be granted the power to set  a rate of income tax for Scottish resident taxpayers from  April 2016. In practice this will work by reducing the  general UK income tax rate that is paid by Scottish  resident taxpayers by up to ten pence in the pound.  Scottish resident taxpayers will then pay an additional  Scottish rate to be set by the Scottish Parliament. 

HOW WILL THE SCOTTISH RATE OF INCOME  TAX BE ADMINISTERED?

This will not be a devolved tax - income tax will  continue to be administered by HMRC - eg through the  PAYE (Pay As You Earn) system. However, businesses  operating PAYE should be aware that some  administrative changes may be necessary and ensure that  they have the necessary processes in place to manage  this.

WILL THERE BE FURTHER DEVOLUTION OF  TAX POWERS?

The referendum has shown that there is a clear desire for  Scotland to have more autonomy from the UK. David  Cameron, Ed Miliband and Nick Clegg all pledged to  give the Scottish Parliament greater tax powers if there  was a "No" vote and Scotland will be looking to them to  honour their promise. It is thought that an independent  chair will be immediately appointed to lead a working  party to create new tax powers for Scotland and draft  legislation will be published in January.

WHAT FURTHER DEVOLUTION CAN WE  EXPECT?

It is difficult to say with any certainty.  Undoubtedly  Scotland will be looking for full devolution of tax powers  to Scotland (devo max). Scotland will want, at a  minimum, to have full control over income tax and  corporation tax rates. However, the UK Parliament will  be looking for devolution to take a more middle ground.  The scope and form of further devolution could be the  subject of intense negotiation over the next few months.

WHO WILL ADMINISTER TAXES IN SCOTLAND?

For the time being, pending further devolution, taxes will  continue to be collected and administered by HMRC and there will be no change for businesses in the way this is done.  

The newly established Scottish tax authority, Revenue  Scotland, is to be given responsibility for Scotland's  devolved taxes. For the moment, it will have  responsibility for collecting and administering SLT and  LBTT. However, if there is a move towards further  devolution in Scotland, it may assume greater  administrative responsibility in relation to any such  devolved taxes, subject to being granted the power to do  so by the UK Parliament.  Adequate staffing is obviously  required.

WHAT ISSUES SHOULD BUSINESSES BE  CONSIDERING?

Issues businesses should be considering include:

  • whether they are engaging in land transactions in  Scotland and how they  will comply with the new  LBTT system;
  • whether they  will be subject to SLT and how they  will comply with the new SLT system;
  • how they  will administer any changes caused by the  changes to the Scottish rate of income tax; and
  • how any further devolution in the area of taxation  might affect them.