Deficiency relief — changes following the introduction of the Scottish advanced rate of Income Tax
Published 14 October 2024
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Who is likely to be affected
The measure affects Scottish taxpayers who claim deficiency relief and whose income is taxable at the Scottish advanced rate of Income Tax.
General description of the measure
This measure ensures that deficiency relief can be calculated by reference to income taxable at the Scottish advanced rate of Income Tax and simplifies the construction of the legislation.
Policy objective
This measure enables deficiency relief to be calculated by reference to income taxable at the Scottish advanced rate of Income Tax, avoiding discrepancies in approach across the United Kingdom.
Background to the measure
On 22 February 2024, the Scottish Parliament passed the Scottish Rate Resolution 2024-2025 introducing a Scottish advanced rate Income Tax band. This means that from 6 April 2024, the former Scottish higher rate Income Tax band is split into the Scottish higher rate Income Tax band and the Scottish advanced rate Income Tax band.
Detailed proposal
Operative date
This measure will have effect from 6 April 2024.
Current law
Current law is included in section 539 Income Tax (Trading and Other Income) Act 2005.
Proposed revisions
To avoid discrepancies in approach across the United Kingdom, this measure enables deficiency relief to be calculated by reference to income taxable at the Scottish advanced rate. This measure also simplifies the construction of the legislation.
Summary of impacts
Exchequer impact (£ million)
| 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 | 2028 to 2029 | 2029 to 2030 |
|---|---|---|---|---|---|
| Empty | Empty | Empty | Empty | Empty | Empty |
The final costing will be subject to scrutiny by the Office for Budget Responsibility and will be set out at the next fiscal event.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
Around 140 individuals claim deficiency relief each year across the whole of the UK. A small subset of those will be impacted by this measure by being able to claim deficiency relief calculated by reference to income liable to tax at the Scottish advanced rate. This will maintain the current UK wide approach.
This measure is not expected to impact on family formation, stability or breakdown.
This measure is expected overall to have no impact on individuals’ experience of dealing with HMRC as it does not change any processes or tax administration obligations.
Equalities impacts
It is not anticipated that there will be impacts for those groups sharing protected characteristics.
Impact on business including civil society organisations
This measure is not expected to impact businesses or civil society organisations as it only affects individuals.
Operational impact (£ million) (HMRC or other)
Minor changes to IT systems are required to implement this measure. These changes will be funded by the Scottish Government.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This instrument will be kept under review through communication with industry representative groups.
Further advice
If you have any questions about this change, contact the Financial Services Team by email: financialservicesbai@hmrc.gov.uk.
Declaration
Tulip Siddiq MP, Economic Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.