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; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

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

    Recruitment Genius: Customer Service Advisor

    £15000 - £16000 per annum: Recruitment Genius: A Customer Service Advisor is r...

    Ashdown Group: Trainee Consultant - Surrey / South West London

    £22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

    SThree: HR Benefits Manager

    £40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

    Recruitment Genius: Office Manager / Financial Services

    £30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

    Day In a Page

    The difference between America and Israel? There isn’t one

    The difference between America and Israel? There isn’t one

    Netanyahu knows he can get away with anything in America, says Robert Fisk
    Families clubbing together to build their own affordable accommodation

    Do It Yourself approach to securing a new house

    Community land trusts marking a new trend for taking the initiative away from developers
    Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

    David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

    The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
    Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

    Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

    Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
    With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

    Money, corruption and drugs

    The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
    America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

    150 years after it was outlawed...

    ... America's first slavery museum is established in Louisiana
    Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

    Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

    The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
    Tony Oursler on exploring our uneasy relationship with technology with his new show

    You won't believe your eyes

    Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
    Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

    Moores must go. He should never have been brought back to fail again

    The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
    War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

    The battle for Mosul will unleash 'a million refugees'

    Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn
    Yvette Cooper: We can't lose the election. There's too much on the line

    Yvette Cooper: We can't lose the election. There's too much on the line

    The shadow Home Secretary on fighting radical Islam, protecting children, and why anyone in Labour who's thinking beyond May must 'sort themselves out'
    A bad week for the Greens: Leader Natalie Bennett's 'car crash' radio interview is followed by Brighton council's failure to set a budget due to infighting

    It's not easy being Green

    After a bad week in which its leader had a public meltdown and its only city council couldn't agree on a budget vote, what next for the alternative party? It's over to Caroline Lucas to find out
    Gorillas nearly missed: BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter

    Gorillas nearly missed

    BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
    Downton Abbey effect sees impoverished Italian nobles inspired to open their doors to paying guests for up to €650 a night

    The Downton Abbey effect

    Impoverished Italian nobles are opening their doors to paying guests, inspired by the TV drama
    China's wild panda numbers have increased by 17% since 2003, new census reveals

    China's wild panda numbers on the up

    New census reveals 17% since 2003