Scotland Bill

I am speaking to amendments 68, 69 and 70 and I wish to put it on record that the wording of those amendments was suggested by the Law Society of Scotland. I shall speak to the amendments first and then to the clause stand part—with your agreement, Mr Walker. I have a substantial number of questions to put to the Government about the implementation of this important clause. On amendment 68, new section 80C empowers the Scottish Parliament to set by resolution the Scottish rate of income tax. This is an important power that is required to be exercised in accordance with the principles set out by the consultative steering group report published by the Scottish Office in 1999. These principles include accountability, openness and accessibility with a view to making possible ““a participative approach”” to ““policy and legislation””. Accordingly, Scottish Ministers should, we believe, be required to consult those considered to be appropriate when proposing the resolution for the Scottish rate—much in line with existing practice of the Treasury here. On amendment 69, new section 80G enables the Treasury to disapply or modify section 6 of the Income Tax Act 2007. This could involve issues such as gift aid relief or pensions relief. The order would be introduced in the UK Parliament and debated and passed or rejected in the UK Parliament. However, it could substantially affect the Scottish rate and Scottish taxpayers, as well as Scottish charities and pension funds, so we believe that Scottish Ministers and the Scottish Parliament should be specifically consulted prior to any amendment of these reliefs. Finally, amendment 70 takes out subsection (4). We have concerns about the provision. Section 80G(4) provides that an order made under that section"““may, to the extent that HM Treasury consider it to be appropriate, take effect retrospectively””." We believe that HM Treasury should, at a minimum, consult Scottish Ministers and the Scottish Parliament if retrospectivity is required. The Minister will not be surprised to hear me say that I think all Governments should avoid retrospective legislation whenever possible—unless there is a proven and specified need. We think that the case for retrospective application in this instance has not yet been made out. The amendment is designed to probe this issue. The Scotland Office has indicated that the power would be used to make tax reliefs applicable retrospectively, but I suggest that this could be done either by regulation or statutory instrument. The clause enables a charging order to be made by the Treasury, which is a matter of concern to us. Any retrospective action by the Treasury could—I stress could—have a detrimental impact on individual taxpayers and on the Scottish parliamentary budget. I hope that when the Minister responds he will provide some assurance about the circumstances in which and when the Government intend to use this power. I hope he will confirm how limited the power will be when it comes to its practical exercise. Paragraph 673 of the report by the Holyrood Committee asked a number of questions about residence. The question of residence is one about which most of the tax experts we consulted expressed some concern. I understand that there is no statutory definition of a UK resident taxpayer. This legislation, however, attempts to define by statute a Scottish resident taxpayer. Given that that is, in a purely technical sense, a subset of a UK resident taxpayer, I think the Minister would accept that it is unusual to have a fixed statutory definition within a floating definition. I would like to question him a bit further about how this will work in practice and what the levels of risk are in respect of the current application of the law. Paragraph 673 of the Holyrood Committee report asks what ““place of residence”” means, as defined in clause 26, as it appears to be different from how residence is understood in other areas of tax law such as capital gains tax. Does place of residence imply ownership when juxtaposed against ““main place of residence”” in new section 80E(a), (b) and (c). Place of residence and main place of residence are not defined in that new section, which I fear could present problems of interpretation. I would be grateful if the Minister clarified his understanding of the interpretation in this case. How the tax is to be applied in practice is an important issue. The vast majority of Scottish taxpayers live the whole period of their lives in Scotland or live there for very substantial periods, and it is relatively easy to define who those people are. What about people working on board ships or on oil rigs, for example? What about members of our armed forces and what about those who are neither UK resident nor employed by non-UK employers? As I said, the Scottish taxpayer is defined by reference to an individual who is resident in the UK for income tax purposes. The current definition of UK residency lies in 86 pages of guidance that are the subject of frequent revision by HMRC. How, then, can the Government be confident that this definition is going to work? Do the Government agree with the Chartered Institute of Taxation that the introduction of a possible statutory residence test for the UK is now essential? Experts in, for instance, the Institute of Chartered Accountants of Scotland, the Chartered Institute of Taxation, the Federation of Small Businesses and CBI Scotland have expressed concern about the lack of a concrete definition. What are the Government doing to address those concerns expressed by professional experts? I understand that they are considering the issue. Will the Minister tell us whether they are likely to attempt to provide a better definition of a UK resident taxpayer in the Finance Bill that will follow next week's Budget statement? Will the Government clarify the position of personal representatives of a deceased person? Will they count as individuals for the purpose of this definition? If so, will any income arising during the administration of an estate be treated as income subject to the Scottish rate? What are the Government doing to address concerns about the ““close connections”” test? For example, an English oil worker who lives in England but commutes to a Scottish oil rig—which, of course, is a regular occurrence—will not have a close connection, but a Scottish resident who works in England and returns to Scotland for weekends and holidays could be caught. How will the Government deal with mobile workers who may find it impossible to know where they are until a day count is carried out at the end of the tax year? It has been suggested that there is a high risk of perception of unfairness because the definition of ““Scottish residence”” is so loose that wealthy individuals can arrange their affairs in such as way as to avoid a higher rate of tax. How do the Government plan to avoid such a scenario? What mechanisms do they propose to deal with disputes about the application of the rules? Will there be a special tribunal system and a right of appeal? Do the Government not agree that if a non-UK resident is working in Scotland and liable to pay tax, it should be paid at the Scottish rate? The Bill currently provides for company directors, sports people and entertainers undertaking duties wholly in Scotland to pay UK income tax on income earned entirely in Scotland, but not to pay Scottish income tax. Employees will inevitably approach their employers rather than the tax office for information on their tax status. What will the Government do to support employers? I appreciate that the implementation of the Bill is a number of years away, but I think it important at this stage to give businesses and employers as much reassurance as possible about how the Government will seek to minimise the burden and bureaucracy that they may have to face as a result of the Bill. When the Federation of Small Businesses surveyed its members, it found that 18% of them did not use PAYE software to administer their payrolls by means of computer systems, but undertook the task manually. Is it not unhelpful of the Government to suggest that many small businesses should be forced to take on the burden of identifying and administering the new tax rates? What specific measures will the Government introduce to help small businesses with 10 or fewer employees to cope with the changes? Although there has been some publicity in Scotland about the Bill, south of the border there will be little knowledge among businesses that may employ a few staff north of it. What kind of public awareness campaign will the Government conduct to make companies aware of the proposed changes and their impact on payrolls? I should be grateful if the Minister told us about any of the discussions he has held with the high-level expert group about the definition of Scottish residence and the issues that have arisen as a result of those discussions, which I understand have been proceeding for some months. The Chartered Institute of Taxation has suggested that HMRC will need to"““staff up properly in anticipation of a considerable extra flow of questions when the Scottish income tax goes live.””" What are the Government doing to achieve that, given that in recent months HMRC has been closing offices across Scotland and the rest of the UK and reducing its capabilities? Under the Bill in its present form, no account is taken of a split year, which means that once someone is classified as a Scottish taxpayer he or she will remain one for the entire year. The opposite will apply to those living in another part of the United Kingdom. For example, if a company's one Scottish employee moves south, the company will have to continue to have a Scottish taxpayer on the payroll even when that person is no longer a Scottish employee. What is the Government doing to address an anomaly that some may consider unfair? Do the Government not agree that new section 80G (1) is drafted too widely? The Chartered Institute of Taxation has described it as a ““Henry VIII”” provision. Do the Government not think it inappropriate to use secondary legislation to make major structural changes in primary legislation without proper oversight from the UK Parliament, and indeed the Scottish Parliament, on whose budget such measures could have a substantial impact? If changes such as pension deduction rules are required, should they not be effected through primary legislation, or should not the Scottish Parliament and Government at least be given the right to be formally consulted? As I said earlier, we are concerned about the potential retrospective application of orders. Do the Government not agree that individual taxpayers deserve a degree of certainty in regard to their tax affairs as the end of a tax year approaches?