Scottish Independence Would Double Compliance Cost

November 19, 2009 Taxation in UK  No comments

The UK Scotland Office has published a report claiming that if Scotland were to attain separation from the UK and full fiscal independence, its tax compliance costs could rise to £1 billion or more.

The Scotland Office released a report on November 18th, entitled “Tax Administration and Constitutional Change in Scotland”. The report indicates that full fiscal autonomy in Scotland would be un-affordable and un-beneficial.

If Scotland were to follow plans for “Devolution Max”, whereby it would gain full fiscal autonomy and be separated from the United Kingdom, the country would need to establish its own tax collection agency, which would require a budget similar to the HMRC’s £4 billion. The £506.4 million in compliance costs currently faced by Scottish businesses, as calculated in the report, would also be unlikely to be significantly altered. Though, as Scotland currently sells 65% of its exports within the UK, it is expected that many businesses would see themselves facing obligations to comply with two tax systems, the UK’s and Scotland’s own. Estimates in the report claim that this would see the average firm double their compliance costs. With no indication of what Scotland’s independent tax policy and levels would be, the report concludes that there is currently no evidence to warrant such action.

Jim Murphy, the Scottish Secretary, commenting on the concept, said, “This sets out the considerable costs of setting up, running and complying with a separate Scottish tax system,” and “These costs bring no benefit whatsoever. It is simply a tax on paying tax and business will bear the brunt”.

The “Tax Administration and Constitutional Change in Scotland” report can be found on the Scotland Office website.

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