Scottish Tax Proposals

The Calman Report proposes that Scottish parliament should have the power to set a Scottish rate of income tax as well as being responsible for Stamp Duty Land Tax, Aggregates Levy, Landfill Tax and Air Passenger Duty.
Scottish Income Tax Rate

The proposal is to reduce the rate of UK income tax payable by Scottish taxpayers by 10%, with a corresponding reduction in the block grant from Westminster (which will continue to be calculated under the Barnett formula, at least until a UK-wide needs assessment is carried out). The Scottish Parliament would set a Scottish rate of income tax which Scottish tax payers would pay in addition to the reduced UK rate. Personal allowances and the higher and lower rate tax bands would not be affected (ie the Scottish Parliament would only have control over the Scottish income tax rate, and not over the tax base).

Income tax for Scottish taxpayers could thus be higher or lower than in the rest of the UK, for example if the Scottish income tax rate was set at 8%, basic rate taxpayers in Scotland would pay 18% and higher rate taxpayers would pay 38%, which is less than other UK taxpayers.

The Scottish income tax rate would replace the power to vary the basic rate of income tax which has always been available to the Scottish Parliament but which has never been used.
Collection of Scottish Income Tax

Scottish income tax will be collected by HMRC on behalf of the Scottish Government. Most income tax is collected through the PAYE system; it is likely that PAYE notices of coding will be the mechanism for employees. There is already a definition of "Scottish taxpayer" in the Scotland Act, which may need to be brought up to date in view of current developments on the definition of residence and domicile. HMRC have already carried out some work to identify Scottish taxpayers, and this will need to be checked and verified. Consideration will need to be given to the impact on other many other areas such as tax relief for pension contributions and charitable donations.

The Scottish income tax rate will not apply to income from savings and investments, since tax is deducted at source from these payments by banks and building societies and it is thought to be impractical to apply the Scottish income tax rate here. Instead part of the tax deducted from savings and investment income will be assigned to the Scottish Parliament.
Other taxes to be devolved to the Scottish Parliament

Stamp duty land tax, Aggregates Levy, Landfill Tax and Air Passenger Duty will also be devolved to the Scottish Parliament, although it is not clear whether the Scottish Parliament will only have the power to change the rates of these taxes, or whether it will also have the ability to amend the tax base, for example by introducing different reliefs in Scotland.
New Scottish Taxes

The Scottish Parliament will also have the power to raise new taxes by agreement with Westminster. This could include different local taxes as well as other taxes such as a plastic bag tax, for example.
Greater co-operation between the Scottish Parliament and HMRC

The Report recognises that the proposed devolution of taxes will only work if there is greater co-operation between the Scottish parliament and HMRC, so that HMRC advises Scottish Ministers on the devolved taxes and is accountable to the Scottish Ministers for the Scottish taxes it is collecting. In addition it is suggested that all spending and grant calculations carried out by HMRC and HM Treasury in relation to these proposals should be audited by the National Audit Office.
Phased introduction of new proposals

The report recognises that the proposals are wide reaching and may have to be introduced gradually with a period of shadow working to ensure the systems work correctly before they are introduced.