Poll suggests growing confusion over Scottish taxes

Ahead of this afternoon’s vote to set Scottish Income Tax rates for 2023/24, the Chartered Institute of Taxation (CIOT) has published the results of a new poll suggesting growing confusion over how taxes are decided in Scotland.

 

The CIOT has also published a tax table showing the differences in Scottish and UK income tax rates for the year ahead if, as expected, the government’s plans are passed without change.

 

The poll was undertaken by the Diffley Partnership and is the fourth to be conducted by CIOT since 20181.

 

The 2023 survey found:

 

  • Only one in five (20 per cent) respondents correctly identified that income tax is a shared responsibility of the Scottish and UK parliaments. This is the lowest figure recorded since the survey was first conducted in 2018 (34 per cent) and is a fall of seven points on the 27 per cent recorded when the poll was last undertaken in 2021

 

  • More than half (52 per cent) incorrectly thought that the Scottish Parliament alone is responsible for setting income tax. This is the highest figure recorded since the survey began (2018: 41 per cent) and an increase of nine points on 2021 (43 per cent)

 

In answer to a further question, 55 per cent of those surveyed said they believed the amount of income tax they paid has gone up in the last few years. This is also the highest figure recorded since the survey began in 2018.

 

While the Scottish Parliament has the power to set rates and bands of income tax on non-savings, non-dividend income (i.e. income from a job, self-employment profits, pensions and rental income), a range of other income tax powers apply in Scotland that are set UK-wide.

 

They include things like setting the tax-free personal allowance, setting tax reliefs, collecting income tax and setting rates and bands of income tax paid on savings and dividends. National Insurance is also set on a UK-wide basis, and its rates and thresholds are tied to UK, not Scottish, tax rates.

 

If MSPs agree to the income tax proposals as published by the Scottish Government in December, it will mean further divergence between Scotland and the rest of the UK.

 

As previously highlighted by the Institute2:

 

  • In 2023/24, Scots with earnings under £27,850 will pay less tax than someone on the same earnings elsewhere in the UK as a result of the 19p Scottish starter rate of tax – though the maximum difference will only be £21.62 per year.
  • Increasing the higher rate of Scottish Income Tax to 42p means that someone earning £50,000 will pay an extra £63.38 a year in tax from April compared to the current tax year. They will pay £1,552.48 per year more on this level of income than someone on the same salary in other parts of the UK from April.
  • Lowering the top rate threshold to £125,140 and increasing the rate to 47p means that Scots with earnings of £150,000 (the previous top rate threshold) will pay an additional £2,432.08 compared to this year. They will pay an extra £3,857.88 compared with someone earning the same salary elsewhere in the UK.

 

A tax table is provided at the foot of this email comparing expected Scottish and UK income tax liabilities for 2023-24 and the differences across different income levels3.

 

Sean Cockburn, chair of the CIOT’s Scottish Technical Committee, said:

 

On the opinion poll findings:

 

“The growing confusion among Scots over where income tax is set is concerning.

 

“Scots may be looking at the increasingly lively debate about levels of income tax and concluding that this means that power rests solely at Holyrood.

 

“The reality however is more complicated than that, as many important aspects of the income tax regime continue to be set on a UK wide basis, such as the amount of money someone can earn tax free and the amount of income tax that someone pays on their savings or dividend profits.

 

“A lack of understanding of how the tax system works is not a uniquely Scottish issue, but increasing divergence between the Scottish and UK income tax regimes means it will be important to ensure taxpayers can more easily understand where responsibility and accountability lies”.

 

On the income tax plans expected to be approved by MSPs later today, Cockburn added:

 

“The tax plans agreed by MSPs mean that the Scottish income tax system will continue to be slightly more generous to those on lower incomes, but increasingly less so to those with higher incomes.

 

“Taxpayers with income of less than £27,850 will pay up to £21 a year less income tax than those elsewhere in the UK, due to the 19p Scottish starter rate of tax.

 

“Meanwhile, those with incomes taxable at the higher and top rates of tax will see their liabilities increase as a result of the decision to lower the threshold for the Scottish higher rate of tax and the decision to increase the higher and top rates of tax by an additional penny”.