Tax shocks for Jocks

Opinion: How will Labour's tartan tax work out in practice? Will England become a lucrative on-shore haven? Alasdair Douglas takes a wry look at the chances of Scots getting their sporrans in a twist

Gordon Brown and his friends in the Scottish Labour Party may believe that the greatest advantage in life is to be born a Scotsman - if only for the unconditional hospitality and economic support of the nearest neighbour - and that Jocks will volunteer to pay an extra 3 per cent tax for the privilege if they choose to have their own parliament under Labour's devolution plans. But what about the practicalities?

Since unification, Westminster has sought to impose full integration on the Scots, most infamously in 1747 when to appear distinctly Scots was proscribed by law. Wearing tartan and possessing bagpipes ("warlike weapons" according to the Disarming Act) were punishable by deportation for up to seven years. But, so far, laws have failed to extinguish the Scots' identity. Perhaps 250 years on, a Scottish-dominated Labour government will finish the job by levying the promised tartan tax on anyone who claims to be Scots, for how better could a Labour administration collect a tax which the Scottish electorate votes upon itself?

In international tax, state borders provide the touchstone for separating the taxing rights of one fiscal regime from another but, where the border is, in essence, not real, the imposition of tax by reference to the familiar tests of residence, domicile, source of income and location of trading operations is likely to be, at best, complex and expensive, and, at worst, unfair and a major brake on doing business in Scotland.

Save for the wholly arbitrary exemption for companies, Labour has said little about how it will impose a special tax on Scottish taxpayers, but it might be supposed that it will try existing UK principles as a starting point. The most obvious rule would be to tax those resident in Scotland. This would catch most ordinary Jocks, but would have potential for unfairness round the edges. Peripatetic pop stars and politicians who spend more than half the year outside Scotland would not be resident there under the basic rule and so would avoid the charge. Looked at from this side of Hadrian's Wall, the Englishman on temporary secondment to Scotland for six months would be treated as resident there for the whole tax year and pay Scottish Higher Income Tax on his English income.

Another internationally recognised principle is to tax income whose source is in a particular state, irrespective of the residence of the recipient. Interest arising in the UK is subject to withholding tax when it is paid to a non-resident, income from trading activities carried on by a non- resident in the UK is taxable, etc. Would this source principle be of any use in imposing the new Scottish tax? The ease of administration would appeal to the Treasury if say, banks and other companies were to be obliged to withhold the extra 3 per cent tax from interest and charge an extra 3 per cent advance corporation tax on dividend payments as this would fit easily with the existing regime, but its efficacy would last only for the 24 hours or so that it would take to switch deposits to banks south of the Tweed and divest of shareholdings in Scottish companies.

Taxing the Scottish trading operations of English or other foreign residents would likewise be no simple matter to include in the new regime. Individuals and partnerships currently doing business in Scotland would be discouraged from investing further resources there if the alternative was to invest a few miles south and increase the post-tax earnings by 3 per cent. Sportsmen, musicians and other performers would be reluctant to add the extra appearance farther north if the net profit for performing in Newcastle was that much greater.

But surely the problems are capable of solution. After all, the US has a system under which states charge tax in parallel with the federal system. Each state manages to collect its own tax but the overall structure is far from simple or cheap to administer. Taxpayers in one state pay tax in another if they do business there, subject to a minimum level of activity and determined by reference to property, payroll and receipts in the other state. A permanent residence test is applied if an individual has homes in two states and imperfect tax credits are given across state lines where income is subject to double tax. The US state arrangements are complex enough to apply but, most importantly, are workable because they sit within a countrywide framework where every neighbouring state collects its dues. In the UK, a new Labour Scottish tax would be working against the framework of there being a tax haven next door.

So what would be best? A Scottish Higher Income Tax on the worldwide income of those who claim to be Scots - self-assessed and paid voluntarily - might be the answer. Three per cent of income with no allowances would be payable each year and, in return, the Queen (or, more appositely, the Duke of Edinburgh?) would send a certificate to the taxpayer confirming that he or she was recognised officially as a Jock. And the sanction for non-payment? Those who failed to pay would be deemed to be English. Surely no Scot worth his porridge would risk such a penalty to avoid the Scottish Higher Income Tax?

The writer is head of corporate tax at UK corporate lawyers Travers Smith Braithwaite, and a Scot.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

PROMOTED VIDEO
Money
Welcome to tinsel town: retailers such as Selfridges will be Santa's little helpers this Christmas, working hard to persuade shoppers to stock up on gifts
news
News
i100
News
people
Arts and Entertainment
Architect Frank Gehry is regarded by many as the most important architect of the modern era
arts + entsGehry has declared that 98 per cent of modern architecture is "s**t"
Arts and Entertainment
Soul singer Sam Smith cleared up at the Mobo awards this week
arts + entsSam Smith’s Mobo triumph is just the latest example of a trend
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Compensation and Benefits Manager - Brentwood - Circa £60,000

    £60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

    Data Analyst/Planning and Performance – Surrey – Up to £35k

    £30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...

    IT Systems Business Analyst - Watford - £28k + bonus + benefits

    £24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

    Markit EDM (CADIS) Developer

    £50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

    Day In a Page

    Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

    Wilko Johnson, now the bad news

    Former Dr Feelgood splits with manager after police investigate assault claims
    Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

    Mark Udall: The Democrat Senator with a fight on his hands

    The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
    New discoveries show more contact between far-flung prehistoric humans than had been thought

    New discoveries show more contact between far-flung prehistoric humans than had been thought

    Evidence found of contact between Easter Islanders and South America
    Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

    Cerys Matthews on Dylan Thomas

    The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
    DIY is not fun and we've finally realised this as a nation

    Homebase closures: 'DIY is not fun'

    Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
    The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

    Air New Zealand's wizard in-flight video

    The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
    Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

    Pumpkin spice is the flavour of the month

    The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
    11 best sonic skincare brushes

    11 best sonic skincare brushes

    Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
    Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

    Paul Scholes column

    I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
    Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

    Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

    While other sports are stalked by corruption, we are an easy target for the critics
    Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

    Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

    Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
    How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

    A crime that reveals London's dark heart

    How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
    Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

    Lost in translation: Western monikers

    Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
    Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

    Handy hacks that make life easier

    New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
    KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

    KidZania: It's a small world

    The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker