Views sought on the Scottish tax policy making process

Background

In Scotland, the Devolved Taxes Legislation Working Group ('the group') was conceived out of the recommendations of the Budget Process Review Group (BPRG). The BPRG had recommended that:

• further work is undertaken by the Finance and Constitution Committee to explore options for alternative legislative processes for devolved taxes legislation, particularly where tax measures need to be introduced quickly or where minor amendments are needed to existing primary legislation; and
• the Scottish government in consultation with the Finance and Constitution Committee examines the need for a Finance Bill and brings forward any recommendations by the end of the current Parliament.

In February 2019, the Finance & Constitution Committee agreed that the group should be established between Scottish government officials and other stakeholders from the Scottish Parliament, Revenue Scotland, Office of Tax Simplification and external representatives, such as ICAS, the Law Society of Scotland and CIOT. In total, the membership is 22 strong.

The group's remit is to advise on a legislative process to facilitate amendments/changes to the devolved taxes, and it is expected to dovetail with the recent Scottish government consultation on tax policy making. The group has met approximately once every two months since April 2019. 

What's happened?

The group has now published its interim report, and it invites responses to the questions raised therein by 27 March 2020. It will then produce a final report with its findings by the end of June 2020, which will be sent to Kate Forbes MSP, the Finance Cabinet Secretary and the Finance and Constitution Committee.

The group has considered the following issues in relation to the making of tax law:

• the importance of full parliamentary scrutiny;
• adequate time being made available for consultation with stakeholders;
• flexibility in the legislative process to address issues quickly;
• recognition of the capacity of the Scottish Parliament and the volume of tax legislation under the current model;
• the relevant merits of making tax changes by primary or secondary legislation;
• sufficient time being allowed between legislation being passed/announced and its commencement for Revenue Scotland to implement changes and for taxpayers and their advisers to prepare; and
• the role of the Scottish Fiscal Commission and the importance of independent forecasts of the effects of any changes.

The interim report merely seeks to reflect on what has been done to date and highlight the possible opportunities and challenges. The main points are:

• the tension between needing to legislate for something quickly and the time required to undergo effective Parliamentary scrutiny;
• the current lack of any annual Finance Bill or Act which would allow for amendments and loopholes to be dealt with and the enactment of new devolved legislative powers;
• the potential for over reliance on secondary legislation; and
• whether there is a case for an alternative strategy to be adopted for taxes as opposed to other forms of legislation.

By way of illustration, in the Scottish Budget on 16 December 2015, the Scottish government announced a 3% LBTT additional dwelling supplement (ADS) with effect from 1 April 2016 to mirror the UK provisions in an attempt to avoid distortions in the Scottish property market. To achieve this effective date, the Land and Buildings Transaction Tax (Amendment) (Scotland) Bill was introduced on 27 January 2016 to allow for a severely truncated six-week Parliamentary process due in part to the Scottish Parliament elections. Apart from the impact on Parliamentary scrutiny, the cumbersome nature of the measure and its timing adversely and unexpectedly affected many property transactions taking place.

The group also noted further tensions created by the ADS legislative process. The Land and Buildings Transaction Tax (Additional Amount-Second Homes Main Residence Relief) (Scotland) Order, SSI 2017/233, was laid to provide that the ADS was not chargeable where a couple bought a house in joint names to replace a previous main residence owned by only one of them. As the 2017 order could not give retrospective effect to the relief, the Land and Buildings Transaction Tax (Relief from Additional Amount) (Scotland) Bill was therefore subsequently introduced to give retrospective effect to the amendments made by the 2017 order.

Next steps

The consultation questions are available at annex A on page 26 of the report. Tax professionals working with devolved taxes legislation should read the interim report and consultation questions, and respond to it by 27 March 2020.