Official Statistics

Scottish Income Tax - Background Quality Report

Published 11 July 2024

Scottish Income Tax Outturn Statistics - Background Quality Report

1. Contact

• Organisation unit - Knowledge, Analysis and Intelligence (KAI)
• Name – N Duncan
• Function - Statistician, KAI Personal Taxes
• Mail address - 3E/01, 100 Parliament Street, London, SW1A 2BQ
• Email - personaltax.statistics@hmrc.gov.uk

2. Statistical presentation

2.1 Data description

These statistics provide information on the Scottish Income Tax (SIT) outturn. This covers non-savings non-dividends (NSND) Income Tax for Scottish taxpayers. In particular, the statistics show:

• how many Scottish taxpayers are liable at each rate of tax
• the Scottish outturn amount at each rate of tax
• an estimate for how much NSND income tax paid by Scottish taxpayers is collected via Pay As You Earn (PAYE) and how much via payments made in Self Assessment (SA)
• indicative Real Time Information (RTI) data for Scottish taxpayers

Additionally, the statistical tables released alongside this bulletin also provide equivalent information for the rest of the UK (rUK) taxpayers on the same basis so comparisons can be made.

2.2 Classification system

Taxpayers in this analysis are classified as Scottish, Welsh, or rUK (English or Northern Irish). This definition of a taxpayer is based on where an individual resides in the course of a tax year. In order to be a Scottish taxpayer, an individual must be resident in the UK for Income Tax purposes

For most taxpayers, the location where they live will be obvious, but there will be less straightforward cases – for example, where people have more than one home. Detailed guidance can be found on GOV.UK.

The location of a person’s employer is not relevant. So, for example, someone who works in Scotland, but has their home elsewhere in the UK, will not be a Scottish taxpayer.

Table 2 provides a breakdown of NSND Income Tax by taxpayer marginal rate, reflecting the highest rate charged on NSND income for each taxpayer according to the Income Tax systems operating in Scotland and rUK.

2.3 Sector coverage

These statistics cover all taxpayers where Income Tax was due on their NSND income.

2.4 Statistical concepts and definitions

Financial year

The statistics are aggregated into financial years. A financial year stretches from 6 April until 5 April the following calendar year.

NSND Income Tax

NSND income includes earnings from employment, pensions, profits from self-employed sources and property. It excludes savings and dividends income.

Only Income Tax due on NSND income is devolved to Scotland. These tables provide a comparison of how NSND Income Tax for Scottish taxpayers compares to that of taxpayers in rUK.

Income Tax liabilities

The amount of Income Tax taxpayers must pay to HMRC. Tax on NSND income in these statistics is measured as the Income Tax liability expected to be collected by HMRC (i.e. the statistics in this publication include an adjustment to liabilities that will not be collected). There is also an adjustment to reflect reliefs claimed from HMRC for pensions and Gift Aid donations.

Taxpayer

Taxpayers in these tables are defined as individuals who have some Income Tax liability on NSND income after reliefs have been applied to reduce Income Tax.

PAYE and Self Assessment (SA)

Employers and pension providers must normally operate PAYE as part of their payroll. PAYE is HMRC’s system to collect Income Tax and National Insurance (NI) from employments and is largely paid in the same year as the taxable activity. When an employer pays their employees through payroll, they also need to make tax and NI deductions for PAYE. An employee’s tax code tells the employer how much Income Tax to deduct. Employers are then obliged to report the amount of these payments and deductions to HMRC as well as paying the tax and NI deducted to HMRC.

An individual is required to file a Self Assessment (SA) return if they meet certain criteria. This is required even for individuals who are also present in PAYE if a requirement for filing in SA is met. SA returns are generally submitted in the year after the taxable activity has taken place.

Liabilities established and liabilities collected/paid through PAYE and SA

For the outturn calculation, an individual who files in SA will have all their Income Tax liability established in SA when they submit their return, even if they have had some tax deducted through PAYE. An individual who is not required to file in SA will have their liability established in PAYE when their information is reconciled each year.

Table 3 shows whether established NSND liabilities are paid through PAYE or SA. This split in Table 3 is different to how established liabilities are split between PAYE and SA in Table 1. For example, for an individual with self-employment income who files an SA return, if they have tax deducted through a PAYE scheme then Table 3 will reflect those corresponding liabilities as paid separately.

Income Tax receipts

The amount of Income Tax collected by HMRC during a given financial year.

2.5 Statistical unit

The unit in these statistics is individual taxpayers.

2.6 Statistical population

All taxpayers who have some Income Tax liability on their NSND income after reliefs have been applied.

2.7 Reference area

The geographic region these statistics cover is the United Kingdom (UK) with breakdowns for Scotland, Wales (from financial year 2019 to 2020) and rUK (England and Northern Ireland).

2.8 Time coverage

These statistics cover from the financial year 2016 to 2017 to the most recent financial year data are available.

3. Statistical processing

3.1 Source data

National Insurance and PAYE Service (NPS)

NPS is an HMRC administrative system which contains data on all employees and occupational pension recipients with a PAYE record.

Taxpayer’s tax residency status and the value of their tax liabilities are extracted annually from NPS for use in the outturn statistics.

Computerised Environment for Self Assessment (CESA)

CESA is a live HMRC system which covers all taxpayers who file an SA return. Individuals who must file a tax return include the self-employed, company directors, paying the High Income Child Benefit Tax Charge (HICBC) or having complex tax affairs.

SA returns (online returns, paper returns, and amendment returns) submitted by customers are captured directly to CESA. At the end of each day, the latest version of the return (and all other data) held is passed from CESA to another HMRC system, the Corporate Data Warehouse (CDW). Monthly extracts are then taken from CDW for analysis.

Where individuals have both NPS and CESA records, their CESA record is selected and the NPS record disregarded because CESA records provide a more complete picture of NSND income.

Taxpayer’s tax liabilities are extracted from CESA annually.

Strategic Accounting Framework Environment (SAFE)

SAFE is an HMRC administrative system containing certain PAYE and SA charges.

Data on PAYE Settlement Agreements (PSAs), Contract Settlement Agreements, and the value of PAYE Income Tax amounts written-off/remitted for each tax year are extracted from SAFE for the compilation of these statistics. These are extracted annually.

A PSA allows an employer to make one annual payment to cover all the tax and NI due on minor, irregular or impracticable expenses or benefits for their employees.

The expenses and benefits reflected in the PSA are not recorded through payroll and are not required to be included on end of year P11D forms, in which other employment expenses and benefits are reported to HMRC. As a result, PSAs are accounted for separately to other PAYE liabilities.

HMRC continually conducts compliance activity to ensure that individuals and businesses are paying the correct amount of tax at the right time. Through compliance activities, if an individual or business is found to have underpaid their tax, an assessment can be raised by HMRC to collect any remaining duties. HMRC can collect this tax through a Contract Settlement Agreement.

Contract Settlement Agreements are an agreement between HMRC and a taxpayer or business, whereby the additional outstanding debt is not recorded within CESA; rather it is settled by way of a bespoke contract between the two parties. As a result, analysis using the CESA extracts will not include Contract Settlement Agreements. These are accounted for separately in the outturn.

Real Time Information (RTI)

The RTI administrative system covers all individuals who have a live employment open on a PAYE Scheme.

Under RTI, employers are required to send HMRC information about tax and other deductions made through the PAYE system every time an employee is paid. This information is used to compile the statistics in Table 4 of the publication.

3.2 Data validation

Checks carried out on the data include:

• The number of records loaded into the analysis database is checked against expectations.
• Analysts check for any outliers with very large liabilities in the data. These are then examined on a case-by-case basis.
• Any large changes in liabilities figures from one statistical release to the next are investigated.
• Spot checks are performed on taxpayer’s liabilities to ensure they are correct.

3.3 Data compilation

The below details the aggregation, new variables and combining of data involved in the SA and PAYE Established Liability components of the statistics. Section 7 of the publication details the methodology in more detail.

Aggregating data

SA data are aggregated to individual taxpayer level by using taxpayer’s unique taxpayer reference numbers. NPS data extracts are already aggregated to a taxpayer level at the point of delivery.

Deriving new variables

Several new variables are derived from the data, for example:

• the value of reliefs for each taxpayer
• how taxpayer’s total Income Tax liability is broken down into tax rates
• the amount of tax collected at each tax rate

Combining data

NPS data are combined with SA data to determine who is a Scottish, Welsh or rUK taxpayer.

4. Quality Management

4.1 Quality assurance

Our statistical practice is regulated by the Office for Statistics Regulation (OSR). OSR sets the standards of trustworthiness, quality and value in the Code of Practice for Statistics that all producers of official statistics should adhere to. You are welcome to contact us directly with any comments about how we meet these standards by emailing personaltax.statistics@hmrc.gov.uk. Alternatively, you can contact OSR by emailing regulation@statistics.gov.uk or via the OSR website.

Analytical Quality Assurance describes the arrangements and procedures put in place to ensure analytical outputs are error free and fit-for-purpose. It is an essential part of KAI’s way of working as the complexity of our work and the speed at which we are asked to provide advice means there is a high risk of error which can have serious consequences on KAI’s and HMRC’s reputation, decisions, and in turn on peoples’ lives.

Every piece of analysis is unique, and as a result there is no single quality assurance (QA) checklist that contains all the QA tasks needed for every project. Nonetheless, analysts in KAI use a checklist that summarises the key QA tasks, and is used as a starting point for teams when they are considering what QA actions to undertake. Teams amend and adapt it as they see fit, to take account of the level of risk associated with their analysis, and the different QA tasks that are relevant to the work.

At the start of a project, during the planning stage, analysts and managers make a risk-based decision on what level of QA is required.

Analysts and managers construct a plan for all the QA tasks that will need to be completed along with documentation on how each of those tasks are to be carried out. Analysts then turn this list into a QA checklist specific to the project.

Analysts carry out the QA tasks, update the checklist, and pass onto the Senior Responsible Officer for review and eventual sign off.

4.2 Quality assessment

The QA for this project adhered to the framework described in ‘4.1 Quality assurance’ and the specific procedures undertaken were as follows:

Stage 1 – Specifying the question

Up to date documentation was agreed with stakeholders setting out outputs needed and by when; how the outputs will be used; and all the parameters required for the analysis.

Stage 2 – Developing the methodology

Methodology was agreed and developed in collaboration with stakeholders and others with relevant expertise, ensuring it was fit for purpose and would deliver the required outputs

Stage 3 – Building and populating a model/piece of code

• Analysis was produced using the most appropriate software and in line with good practice guidance.
• Data inputs were checked to ensure they were fit-for-purpose by reviewing available documentation and, where possible, through direct contact with data suppliers.
• QA of the input data was carried out.
• The analysis was audited by someone other than the lead analyst – checking code and methodology.

Stage 4 – Running and testing the model/code

• Results were compared with those produced in previous years and differences understood and determined to be genuine.
• Results were compared with comparable independent estimates, and differences understood.
• Results were determined to be explainable and in line with expectations.

Stage 5 – Drafting the final output

• Checks were completed to ensure internal consistency (e.g. totals equal the sum of the components).
• The final outputs were independently proofread and checked.

Also note the total figure of SIT is independently audited by the National Audit Office (NAO) to ensure it is fairly stated.

5. Relevance

5.1 User needs

The SIT outturn in these statistics feed into HMRC’s Annual Report which in turn determines the Scottish Government’s (SG) Income Tax revenues. The equivalent outturn for Income Tax on NSND income for rUK taxpayers in these statistics is used by HM Treasury (HMT) to determine the deduction to the SG’s Block Grant. The main users are therefore SG, the Scottish Fiscal Commission (SFC) and HMT officials.

Other users include:

• national government – policy makers and MPs
• regional and local governments
• academia and research bodies
• media
• business community
• general public

5.2 User satisfaction

No formal evaluation of user satisfaction has been undertaken. Positive feedback from users in SG, SFC, and HMT has been received following the release of these statistics however.

5.3 Completeness

These statistics cover all taxpayers in the UK who have some NSND Income Tax liability after reliefs.

6. Accuracy and reliability

6.1 Overall accuracy

This analysis is based on near complete administrative data for all statistical units so sampling error is not relevant.

Non-sampling error is eliminated as much as possible by following the previously mentioned quality assurance stages. Over 95% of the final outturn figure comes from established Income Tax liabilities, the remaining amount is estimated to account for liabilities which may be established in the future. (For example, liabilities arising from late filing SA taxpayers).

Potential sources of error include:

• Taxpayers entering the incorrect information or not completing their SA returns
• Employers providing incorrect information to HMRC through PAYE/RTI
• Human or software error when transferring the various administrative data between IT systems
• Human or software error when assigning NPS residency status to taxpayers (used to determine if taxpayers are Scottish, Welsh or rUK)
• Inaccurate estimates of future arising liabilities from late filing SA taxpayers and future compliance activity
• Inaccurate estimates of the amount of Income Tax liability which will be written-off/remitted
• Mistakes in the programming code used to produce the statistics

6.2 Non-sampling error

Coverage error

All employers must provide HMRC with details of their employees. This is checked through regular scans of the NPS system.

All taxpayers who are asked to file an SA return must do so by the filing deadline to avoid penalties. Some SA returns will be filed late and must still be accounted for in the final outturn figures.

Measurement error

It is possible for employers and SA taxpayers to provide incorrect information to HMRC. To mitigate against this, checks are conducted on the underlying data before the statistics are produced. During production of the statistics, additional checks for extreme figures are investigated on a case-by-case basis.

Nonresponse error

The value of late filed SA returns has been estimated by examining historic SA data to determine the pattern of SA filing in the preceding five tax years. It is assumed that the average growth of liabilities for these years will be the same for the years presented in these statistics. These late filed SA returns contribute around 2% of the total outturn figure.

Not all PSAs are always processed at the time of producing the outturn statistics. If this occurs, estimation of the total value of PSAs is calculated by examining the trend of historic PSA data. These PSAs contribute around 0.3% of the total outturn figure

Processing error

It is possible that errors exist in the programming code used to analyse the data and produce the statistics. This risk is reduced through developing a good understanding of the data and reviewing the programs that are used.

6.3 Data revision

Data revision – policy

The United Kingdom Statistics Authority (UKSA) Code of Practice for Official Statistics requires all producers of Official Statistics to publish transparent guidance on the policy for revisions.

The statistics in this release are not subject to scheduled revisions. Non-scheduled revisions could occur if an error was found in these statistics.

Data revision - practice

In 2021, inconsistencies in the regional classification of a small number of SA taxpayers were discovered in HMRC’s NPS and SA systems.

The process of producing the outturn figures has been revised for the 2020 to 2021 outturn onwards. The figures from previous outturn have been revised in the 2020 to 2021 statistical release.

Overall, this led to an average yearly reduction of SIT revenue of £8.9 million (-0.08%) over the period 2016 to 2017 to 2019 to 2020.

In 2024 HMRC discovered a number of individuals that were recorded in both the Self-Assessment (CESA) and PAYE (NPS) data extracts used in the production of these statistics. The process of producing the outturn figures has been revised for the 2022 to 2023 outturn onwards. The figures from previous outturn years have been revised in the 2022 to 2023 statistical release.

This led to an average yearly reduction of SIT revenue of £78 million (-0.7%) over the period 2016 to 2017 to 2021 to 2022.

7. Timeliness and punctuality

7.1 Timeliness

These outturn statistics are published around 14 months after the end of the tax year they relate to. The lag in publishing these statistics is caused by:

• the SA filing deadline taking place in the January after the tax year the returns relate to
• some of the input data used in the analysis relates to the tax year after the year the statistics relate to (for example, we use 2020 to 2021 settlement agreement data in the analysis for the 2019 to 2020 outturn statistics)
• it takes one to two months for analysts in HMRC to compile and QA the outturn statistics from the raw data
• it takes around a month for the NAO to audit the SIT estimates

The publication date for these statistics is normally aligned with the release of HMRC’s Annual Reporting Accounts.

7.2 Punctuality

In accordance with the Code of Practice for official statistics, the exact date of publication will be given not less than one calendar month before publication on both the Schedule of updates for HMRC’s statistics and the Research and statistics calendar of GOV.UK.

Any delays to the publication date will be announced on the HMRC National Statistics website.

The full publication calendar can be found on both the Schedule of updates for HMRC’s statistics and the Research and statistics calendar of GOV.UK.

8. Coherence and comparability

8.1 Geographical comparability

The statistics detail NSND Income Tax for Scotland and rUK, figures are comparable between the two areas.

8.2 Comparability over time

Measure of rUK

From 2019 to 2020, a proportion of Income Tax paid by taxpayers living in Wales will be transferred to the Welsh Government through the introduction of the Welsh Rates of Income Tax (WRIT). These are controlled by the Welsh Government (WG). HMRC publishes separate statistics on Welsh Income Tax. This means it is no longer appropriate to compare Scottish NSND Income Tax growth to rUK NSND Income Tax growth that includes Welsh NSND Income Tax.

For the purpose of indexing the Scottish Block Grant Adjustment (BGA) changes in the geographical coverage have to be introduced with a one year delay.

The statistical tables therefore contain 2019 to 2020 rUK figures on two measures (labelled ‘post-Welsh tax devolution basis’ and ‘pre-Welsh tax devolution basis’) which have two key differences. For the ‘post-Welsh tax devolution basis’ rUK measure:

• NSND Income Tax for Welsh taxpayers is not included
• a new methodology of calculating PAYE established liability has been introduced – please see section 7.2 of the 2019 to 2020 commentary for more information on this.

Statistics for Scottish and EWNI (England, Wales, and Northern Ireland) Income Tax outturns begin for the 2016 to 2017 tax year.

Late filed SA returns

The value of late filed SA returns has been estimated by examining historic SA data to determine the pattern of SA filing in the preceding five tax years. It is assumed that the average growth of liabilities for these years will be the same for the years presented in these statistics.

This is performed separately for Scottish and rUK taxpayers. Taxpayers with a Scottish postcode were used as a proxy for Scottish taxpayers in these years, as no Scottish indicator exists before SIT was introduced.

For outturn statistics relating to tax years before 2019 to 2020, this was performed at the aggregate level only. This was then distributed based on the breakdown of established SA liabilities by tax bands.

For 2019 to 2020 onwards this methodology was refined to account for different filing patterns across taxpayers with different marginal rates. While this does not affect the total Income Tax arising from this component of the methodology, it does provide a more accurate picture of how the Income Tax is distributed between Starter, Basic, Intermediate, Higher and Additional/Top rate taxpayers in the statistics. In particular, the improved methodology results in Additional/Top rate taxpayers being allocated a smaller share of the estimated additional liabilities because they are more likely to file on time.

8.3 Coherence – internal

Rounding of numbers may cause some minor internal coherence issues as the figures within a table may not sum to the total displayed. Effort has been made to ensure totals between tables remain constant where appropriate.

9. Accessibility and clarity

9.1 News release

There have not been any press releases linked to the data over the past year.

9.2 Publication

Tables are published in the OpenDocument format, and the associated commentary as an accessible HTML webpage.

Both documents comply with the accessibility regulations set out in the Public Sector Bodies (Websites and Mobile Applications) (No. 2) Accessibility Regulations 2018.

Further information can be found in HMRC’s accessible documents policy.

9.3 Documentation on methodology

Background and methodological information on these statistics is available at the end of the statistics’ accompanying commentary.

9.4 Quality documentation

Information about quality procedures for this analysis can be found in section 4 of this document.

10. Cost and burden

Because all necessary data for the Scottish Income Tax outturn statistics are obtained from administrative data sources, e.g. NPS and CESA, there is no additional burden on companies to provide information used in these statistics. It is estimated to take about 60 days FTE to produce the annual analysis and publication.

11. Confidentiality

11.1 Confidentiality – policy

HMRC has a legal duty to maintain the confidentiality of taxpayer information.

Section 18(1) of the Commissioners for Revenue and Customs Act 2005 (CRCA) sets out our duty of confidentiality.

This analysis complies with this requirement.

11.2 Confidentiality – data treatment

The statistics in these tables are presented at an aggregate level so identification of individuals is not possible.

Further information on anonymisation and data confidentiality best practice can be found on the Government Statistical Service’s website.