Local Income Tax - request for information

[andrewducker]

Can anyone point me at information about the Local Income Tax proposals?  Specifically I'd like to know if it only applies to income that is currently affected by income tax - i.e. does it affect the first few thousand pounds of income?

Comments

[snowking.livejournal.com]

Here's the previously announced plans which only applied to current taxable income. Although I'm not sure it'll be exactly the same when they get around to bringing the legislation to Parliament.

[a-pawson.livejournal.com]

The best information I have found is here, on the Scottish Government website, but there are no concrete figures, only estimates.

As far as I know the precise figures have not been published, presumably because they have yet work out the fine details. There is already a dispute with Westminster to be resolved. Salmond was on Radio 4 this morning and the point was raised that if there is no council tax, the Treasury have indicated they will withdraw all payment of COuncil Tax Benefit, which would create a £400 million defecit, Salmond wants that money to continue. There must be a lot of fine detail to work out yet.

There are a lot of questions to be answered. I'm also curious how they are going to prevent any high-earners who own more than one home from simply declaring they live in England.

[surliminal.livejournal.com]

Indeed :-) I am wondering rather a lot about that one! I suspect there will be transitional council tax for us...

[rhythmaning.livejournal.com]

In the unlikely event that it is actually passed by the Scottish Parliament, it is likely to be based on PAYE. So if you work for RBS, say, and are based in Gogarburn, you'll pay Scottish local income tax; if are based in London, you won't.

This is likely to lead to arbitrage for those who are able to choose where they are based.

[a-pawson.livejournal.com]

I don't think that system would work. Say you lived in Carlisle, but work in Dumfries, you are then going to pay twice as Cumbria County Council will be after you for council tax based on your residence while you will be paying the income tax as well due to your employment in Scotland.

[andrewducker]

Nope, you'll pay based on residence. The Income Tax people know where you live...

[rhythmaning.livejournal.com]

Except that the responsibility to pay the Scottish income tax would depend on where you live - which your employer (who administers PAYE on behalf of HMRC) would know.

But I do think it would be awfully difficult - employers would need to keep track of who was where.

[andrewducker]

My employer has my home address. Doesn't yours?

[rhythmaning.livejournal.com]

Well, I work for myself - but sometimes I get confused...

But it does mean that employers will need to run two different systems - one for employees living in Scotland, another for others. I understand that most payroll systems can cope with this - but the payroll department might not.

As you can probably tell, I am highly sceptical about this.

[andrewducker]

Why would they need two payroll systems? Sage (or whatever) will simply cope with the maths for them. It already deals with subtracting money for student loans, after all (which are now paid back out of PAYE).

[rhythmaning.livejournal.com]

Sorry, I should have been clear - I meant two processes rather than payroll systems. And you are right about the equivalence to student loans.

In my view, it would make more sense to collect a local income tax through self assessment - enabling the inclusion of unearned income, but that would also make it easier to evade.

Another thing about a local income tax is that it would make the revenue generated for authorities less predictable: a property tax (be it rate, land value tax or council tax or ...) will provide pretty steady income, whilst the funds generated by an income tax is likely fall in times of economic contraction (such as now), when councils would want stability. This might have the effect of amplifying a contraction (if councils have to cut back on spending when consumers and businesses are already doing so). [Sorry to keep going on - I am afraid I find the concepts behind taxation quite interesting!]

[andrewducker]

Self assessment means that 99% of people will ignore the form when it arrives. I know maybe one person who does their own taxes - the vast majority do everything PAYE.

And dropping taxes is the equivalent of giving a cash injection to the people that need it most (those that just lost their jobs/took paycuts). It's doing the government's job for them!

[sigmonster.livejournal.com]

It's based on a devolved power to vary the basic rate. There is no devolved power to vary starting rate, top rate, personal allowances or tax bands (there is probably a way to effectively vary the allowances and band levels via a hideously complicated end of year rebate from the Executive, but this does not seem to appear in the current proposals).

So yeah, same personal allowances and 10% and 40% bands as the rest of the UK, but basic rate band taxed at 23% instead of 20%.

Para 7.13 of http://www.scotland.gov.uk/government/devolution/scpa-10.asp covers this (although it's not the actual legislative text).

[ninebelow.livejournal.com]

The Saltire Paper on local income tax here:

http://www2.snp.org/html/multimedia/speeches.php

[rhythmaning.livejournal.com]

I wrote about the proposal put out for consultation here.

The plans for the bill aren't detailed - so the best you can go on is the consultation document.

It hasn't been decided whether to have the same personal allowance as UK income tax - though the consultation has that as a proposal.

Also, the rate of tax - stated yesterday (and in the consultation document) at 3p/£ - is probably way too low - this paper and this one suggest a rate of 5p to 8p might be more reasonable.

The Scottish Government's proposal in the consultation paper also suggests that the "local" income tax will only be charged on earned income - so contractors such as myself, who take profits from a business as dividends, won't pay half as much as they otherwise would. This is, frankly, crazy - but since the Scottish Government wants to take the tax through PAYE, it is the only way to do it.

I believe the likelihood of the bill being passed is so slender to be non-existent: it is really political posturing.

[bracknellexile.livejournal.com]

Hmmm. Wonder what happens in my case. Living in Edinburgh but working from home for an English company. Payroll is done in Carlisle, employers address is Carlisle and tax deductions at source (I.e. The 20% tax rate) go straight to HM Revenue & Customs down south. Presumably any local income replacement would be levied at source - 20% becomes 23% - so how does the scottish government get my money when all my tax is handled in England by my employer and paid to Westminster? Gotta be a logistical nightmare compared to the council tax.

[chuma.livejournal.com]

I'm actually in an identical position, but I imagine this is one of the things they will look into and get sorted. It will probably fall on the employer to handle things rather than the Scottish Government though.

[kashandara.livejournal.com]

We could all live in hope that the Westminster Parliament decides it's a great idea and should be taken up across the whole country? ;-)

[andrewducker]

Naaah - it'll happen for 99% of people through PAYE, and the income tax people know where you live...

[bracknellexile.livejournal.com]

*wonders how much taxpayers money wll be wasted to subsidise the enforced upgrade of accounting software at every single business in the UK to cope with the potential that you might employ someone scottish*

[andrewducker]

Well, as students now repay student loans in this way, and the laws change every year anyway, it's not as if they don't update the tax package every year anyway...

[chuma.livejournal.com]

I really think this law will be one of the "devil in the detail" things. I just wonder how much more/less people will be paying compared to council tax. In theory I am all in favour of a tax that is proportional to income but in reality there are ways in which this can be abused.

[fire-sermon.livejournal.com]

Will everyone well paid leave the country? I don't think so, some may, but I don't think there'd be a max exodus. The fact that people with multiple occupancies will now only pay once, based on income, rather than two or more times if they have multiple properties may actually be an attraction to keep people in Scotland.

I've worked mine out based on entire household income (including the part I'm not currently taxed on) and we wouldn't be any better off, but we also wouldn't be any worse off. However, my mother, who doesn't quite qualify for council tax benefit yet struggles to pay council tax as she lives in a city centre house, would pay almost nothing* so would be massively better off. The knock effect is that I would be better off so the need for me to regularly pay her money to help her keep her head above the poverty line would be removed, and she wouldn't feel like she was having to take charity. So it's a huge win in my book.

On one hand, the SNP are looking like they're doing more to save me money than any other party - (prescription charges, reduced and will continue to reduce to zero as long as they're in power; bridge toll gone; hospital car parking gone... Council Tax on the verge of going). I voted for the SNP last time around, and I would do again (unless they really screw up between now and then). They're bringing change, whether right or wrong, which has been needed to shake Scotland and the Scottish parliament up for a while.

But on the other hand - where is the money coming from to pay for it all. I'm suspiscious. Very suspiscious. I failed O grade Arithmetic, but I'm struggling to make it all add up. And please don't someone bring north sea oil into this...


*Given the calculator on the SNP web site suggests my mother would pay next to nothing, I reckon it's only based on current taxable income.

[rhythmaning.livejournal.com]

The calculator is probably based on the rate of 3p/£; the actual rate is more likely to be between 5p and 8p/£, according to what I have read.

[andrewducker]

Of course, devolution only gave them the power to vary it by 3%...

[rhythmaning.livejournal.com]

And I am sure that is why they settled on 3p for their proposals. Say what you like about the SNP, they have been pretty good at gaming the system.

[alienspacebat.livejournal.com]

I'll be happy with this when they start repaying my student loan for me as they promised pre election. Otherwise, because both of us work, we will be paying far more in this system than we do currently