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HMRC implements new IT to make Scottish tax correct

19/12/16

NAO report says new system should overcome last year’s shortcomings, but warns of risk around matching pension data

HM Revenue & Customs (HMRC) has implemented a new IT system to recover from a setback in collecting the Scottish rate of income tax (SRIT), after failing to send notification letters to 420,000 potential taxpayers.

HMRC signThe National Audit Office (NAO) says in a newly published report on the issue that a permanent IT solution was put in place in October, aimed at including the taxpayers in HMRC’s automated process for future years and to ensure they would receive the right tax codes for 2016-17

This follows an error in the design of the taxpayer identification exercise of December 2015, which led to the notification breakdown. When this was identified all of those affected were informed the following April and an interim IT system was set up in June, before the permanent solution was implemented.

The report says the new solution should help to ensure that taxpayer records are correct, although the main challenge for HMRC in delivering SRIT is to keep its record of address details up to date to identify Scottish taxpayers. The distinction with UK taxes has been made for the first time this year, with a proportion of the revenue from Scottish taxpayers going to the Scottish Government.

Future difference

For this financial year there is no difference between Scottish and UK rates, but the draft 2017-18 budget for Scotland sets the income for higher rate tax at a lower level.

This could have future implications for rates of relief at source on personal pension contributions, and the NAO says there is a significant risk around the operation of the IT solution. HMRC has to manage its data matching effectively to ensure that pension providers apply the correct relief, but at present the quality of the data is not good enough for the matching to be done at scale.

The department does have strategies in place to mitigate the risk and is working with the pensions industry to deliver a solution.

Amyas Morse, head of the NAO, said: “HMRC face significant challenges in administering SRIT, particularly when tax rates and thresholds differ between Scotland and the rest of the UK. It is crucial that it maintains accurate address information for Scottish taxpayers, and ensures that the potential for tax avoidance and evasion is mitigated.

“HMRC also needs to be able to report the actual amount of SRIT collected to the Scottish Government, and provide an IT solution that allows private pension providers to claim relief at source.”

 

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