News In Focus

Business warning over Scottish tax costs

18 September 2012

Scottish business leaders want to be shown that separate Scottish tax arrangements would pay their way, according to accountancy firm Ernst & Young.

A discussion paper based on a survey of almost 200 senior Scottish business figures, calls for evidence demonstrating that the administrative and financial costs of the options available to government – whether alterations to current tax systems or a completely separate system under a future constitutional settlement – would be economically justifiable.

However the firm believes that the Scottish Government's move to establish Revenue Scotland as a separate tax collecting body could offer the chance of a fresh start, without the burden of past practice.

The report, entitled Grasping the Thistle, is the first in a planned series that will examine Scotland’s fiscal future and the issues that have the potential to affect the country’s standing as a place to do business.

It claims that almost two thirds of those surveyed (64%) expressed doubts over the viability of establishing new systems in a fast, effective and cost-efficient way, though one respondent suggested that confidence would grow from having more control in Scotland.

Doubts

Jim Bishop, Ernst & Young’s Scotland senior partner, said: “The business community has expressed doubts about the timescales in which the relevant tax systems need to be established. These stem from the difficulties associated with making considerable changes to tax policy established over the course of 300 years.

“Looking to the future, there are concerns that the cost of reconfiguring systems and adapting to a new regulatory environment could be enormous, given that business is run on a UK-wide basis in many cases."

However tax partner Colin Pearson observed: “Having opted to establish Revenue Scotland as a means of collecting some taxes already transferred to it, as well as those via any potential future powers, the Scottish Government would be unencumbered by the legacy systems of HM Revenue & Customs.

“These systems, like those in many large organisations, have struggled to keep pace with rapid leaps in technology and connectivity over the decades. A system designed from scratch could offer easier access and greater flexibility to businesses."

Live issue

Despite the UK Government's rejection of the SNP administration's attempt to gain control over corporation tax, the future of the tax in Scotland remains a live issue for businesses. More than half (54%) of those questioned support lowering corporate tax rates to stimulate investment, albeit with the emphasis on setting sustainably, rather than significantly lower rates. This should, they said, by funded by cuts to public spending rather than other tax increases, though these were regarded as acceptable for other causes.

One respondent commented: “A holistic approach to tax that takes all forms of incentivisation and supporting measures into consideration must be taken for Scotland to remain truly attractive to potential investors.”

Mr Bishop concluded: “Scotland’s corporate entities are required to implement long-term investment plans over a course of many years, if not decades. In order to inform their decision-making processes, the Scottish Government must present a clear, unambiguous vision, outlining the ways in which it would implement current and future tax powers.”