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Tax

Warning over Scotlands council tax plans

Written by Gary Howes

Monday, 08 September 2008

Scottish businesses to suffer with tax changes warns ACCA.

The news that Scotland plans to scrap council tax and replace it with a local income tax must be met with caution warns the Association of Chartered Certified Accountants (ACCA) Scotland.

Andrew Leck, head of ACCA Scotland says, “the concerns highlighted in the many responses to the Scottish Government’s consultation in the summer, still need to be addressed before we can have confidence that this will be a fair tax that will benefit Scotland”

“ACCA Scotland believes that the proposal will place significant burdens on employers and may not raise the revenue currently raised by the Council Tax.”

The following are ACCA Scotland’s main concerns with the removal of the council tax:

A significant funding gap is likely

Implementation costs, a potential shortfall in funds raised, uncertainty over the current council tax rebate and difficulties with collection could all result in a significant funding gap.

Collection bottlenecks are likely

It is difficult to envisage how the collection processes can be made to work. The suggestion that HMRC be used fails to recognise the difficulty they will face if all taxpayers are required to self assess all income. This cannot have a favourable impact on fairness perceptions of a new local tax in Scotland.

Lack of robustness of the key collection criteria

Residency identification, manipulation, lack of certainty and, ultimately, fairness are issues that many of ACCA Scotland’s members have raised. Unless it is carefully managed, residency identification issues are likely to create an environment where, for some, the tax becomes voluntary.

‘Red tape’ will hinder business

The Government seems to be proposing a much higher burden of proof and more onerous record-keeping requirements for businesses and individuals. The overall impact of the increase in red tape will adversely affect the ‘entrepreneurial spirit’ within all sizes and types of business.

Migration of the mobile workforce

ACCA Scotland members are concerned that the risks of migration as well as its impact on the demographic profile of Scotland, and its effect on the economy have not been adequately considered.

Complexity and uncertainty will result in a low level of compliance

The proposed option increases complexity and fails to provide the certainty required by tax payers. Where trust in the tax system decreases, levels of compliance may fall, with the tax effectively becoming voluntary.