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Does Scotland need a Finance Bill ‘lite’?

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The devolution process of Scotland’s two fully devolved taxes – the land and buildings transaction tax (LBTT) and the Scottish landfill tax (SLfT) – has successfully delivered revenue directly to Scotland from transactions in Scotland. However, since taking effect on 1 April 2015, some anomalies have come out of the woodwork with the legislation not operating as originally intended particularly in relation to LBTT (such as with group relief provisions). And over the course of three years, there has already been a new charge – the additional dwelling supplement (ADS) – and now a new relief for first-time buyers is proposed.

With change, the question of process arises: how are legislative changes made?

Both the Land and Buildings Transaction Tax (Scotland) Act 2013 and the Landfill Tax (Scotland) Act 2014 are standalone acts. They are complemented by the Revenue Scotland and Tax Powers Act 2014 which provides the management framework. But, to date, the Scottish budget process has been expenditure focused and so possible amendments to tax law are raised on an ad hoc basis.

Politicians may wish to review tax rates and thresholds across the devolved taxes beyond simply inflationary measures. There is already a process for implementing rate changes to LBTT and SLfT; however, there is no regular timing mechanism attached to this. RSTPA 2014 s 108 ties in with LBTT(S)A 2013 s 68 and LfT(S)A 2014 s 41 and the latter two sections provide for rates to be introduced by statutory instrument using a provisional affirmative procedure, so that new rates can be implemented straight away. Section 108 allows for repayment if the statutory instrument is not adopted. This covers rates and bands or, say, definitions in landfill but it does not cover whole new parts of a tax such as the LBTT additional dwelling supplement.

When new charges, or reliefs, are put forward these can be by way of a standalone act as happened when additional dwelling supplement was introduced to LBTT, or it can be by Scottish statutory instrument. There are significant regulation making powers in each of the three main taxing acts, but it is questionable whether extensive use of secondary legislation instead of primary legislation is an appropriate way to exercise tax powers.

Budget process: In September 2017, ICAS commented that whilst the Budget Process Review Group had examined the budget processes in terms of spending, the new concept of revenue raising due to devolution now needed equal weighting. Formalising a regular timetable and a process by which stakeholders can raise operational and policy concerns with the tax legislation would be preferable to the ad hoc remedies which are currently available.

Care and maintenance: A process is therefore needed in which to address such matters. Whilst a full Finance Bill process may be rather heavy-handed, appropriately weighted ‘care and maintenance’ measures would afford stakeholders and advisers, together with Revenue Scotland and the Scottish government, to revisit the law if they find that parts of the legislation do not work as intended or provide a commercially unstable outcome and to introduce tax policy changes.

Conclusion: A process is required, although the jury is out about the regularity of the process. On the one hand, an annual Finance Bill sits well with an annual Budget process, for rates and bands and general improvements to legislation. On the other, one might question whether an annual process is excessive in relation to the devolved taxes and may lend itself to unnecessary tinkering and change. It is hoped that this will be addressed in the near future. 

Categories: In brief