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Section 2 - How will Local Income Tax be Collected and Administered?
24. This section explains how we propose to administer a local income tax.
25. Unlike general UK income tax, the local income tax will only be used to pay for local authority services. We think a local income tax should fit into the current arrangements for administering UK income tax and be collected by Her Majesty's Revenue and Customs ( HMRC). This is the most efficient way of delivering a local income tax because HMRC already hold relevant data and has the experience and systems that we need to collect a local income tax. We will seek UK Government cooperation to deliver this method of collecting a local income tax. We believe it is reasonable for the Scottish Government to pay HMRC to administer a local income tax.
26. In 2006-07 (the latest year for which figures are available), gross expenditure by local authorities in Scotland on administering the council tax collection system was £62 million (offset by £21 million in fees, charges and other income). Gross expenditure on administering Council Tax Benefit for the Department of Work and Pensions ( DWP) in the same year was £36 million (of which the bulk was provided directly by the DWP). In addition, gross expenditure on council tax valuation was £12 million. The collection and administration costs to HMRC for administering local income tax under our proposals would be considerably less than this.
27. A significant minority of people already pay income tax through self-assessment. These people would add a local income tax to their payment. We could extend this system to require all others who are liable to submit an annual local income tax payment that they calculate themselves.
28. There are a number of other ways that a local income tax could be collected. These include:
- A Scottish Government collection agency
We could establish a new Executive Agency in Scotland with responsibility for collecting a local income tax. This Agency could be given similar powers and duties to the income tax related powers of HMRC. This would be a large financial and administrative commitment and the new Agency would be required to work with employers in the same way as HMRC does for UK income tax. We believe that this extra tier of bureaucracy and administration would represent duplication of effort by the public sector and would not be welcomed by businesses or individuals in Scotland.
- A private sector collection agency
A private company could be employed through open tender to administer a local income tax. We do not think this would be appropriate, as it would entail handling highly sensitive data relating to individuals' incomes. It is not clear that sufficient expertise would exist in the private sector to adopt this approach, and the same issue of duplication of roles would also arise.
Councils are familiar with collecting business rates and council tax and we could utilise this existing expertise. However, we believe that this will duplicate public sector effort and be potentially even more inefficient than a new single collection agency, due to a replication of effort across our local authorities.
29. A different income tax in Scotland than to the rest of the UK is an issue for employers who provide data and taxes to HMRC. Employers will have to apply different rates for their employees who live in Scotland. We are committed to reducing the bureaucracy which businesses face. We can minimise the impact of these changes by providing clear guidance to employers and helping businesses to plan for the introduction of a local income tax. We will work with the UK Government to ensure that processes are thoroughly tested before implementation.
30. The amount raised through local income tax will not be identical to that raised through the council tax. There would need to be an adjustment to local authority funding after the change to take account of the difference and ensure that public services are properly funded. This Government has pledged to work with local authorities to provide a stable funding environment to ensure that the people of Scotland can get the vital front-line services they need.
31. Many council staff are involved in administering the council tax and Council Tax Benefit. Scottish Assessors are responsible for the banding of properties. The Government, local authorities and the Assessors will need to work together as we move from one system to another, minimising disruption to staff and to the payments process to prevent a shortfall in income to the public sector.
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