Scotland Bill

Debate between Duke of Montrose and Lord Maxton

Thursday 15th March 2012 Lords Chamber

[The Duke of Montrose]

My Lords, this is a paving amendment, and I shall address my remarks also to Amendment 54BA and the other amendments in the group. Amendment 54BA will remove the close connection condition for the purposes of identifying a Scottish taxpayer. This is an effort to remove the complications that come from trying to prove a close association, which is a concept that raises many questions of definition and interpretation. The argument is that the best way to define a Scottish taxpayer is without reference to residence in Scotland. Instead, the definition should be based on being a UK citizen and spending more time in Scotland than in other parts of the United Kingdom. This argument has been put to me by the Law Society of Scotland, and I think it has weight.

Perhaps the definition I have just pointed out goes some way to answering the call of the Institute of Chartered Accountants of Scotland for a definition in statute of what constitutes a Scottish taxpayer. At present, new Section 80D defines a Scottish taxpayer as,

“an individual … who is resident in the UK for income tax purposes, and ... who, for that year, meets condition A, B or C”.

These conditions are that the taxpayer,

“has a close connection with Scotland … does not have a close connection with any part of the UK other than Scotland … and … spends more days of that year in Scotland”,

or is an elected parliamentary representative for Scotland.

The residence qualification is typical of the sort of issue that has raised controversy in recent legal cases. I mention Gaines-Cooper v Her Majesty’s Revenue and Customs and Tuczka v Her Majesty’s Revenue and Customs. New Section 80D, when combined with new Sections 80E and 80F, presents problems for those who move between jurisdictions within the United Kingdom inasmuch as they create uncertainty, difficulties of interpretation and potential problems regarding compliance. In particular, the definition of “close connection” contained in new Section 80E creates a difficulty of interpretation—and what does “place of residence” mean? It appears to be different from residence as understood in other areas of tax law, such as capital gains tax. Does “place of residence” imply ownership when juxtaposed with “main place of residence” in paragraphs (b) and (c) of new Section 80E(3)? “Place of residence” and “main place of residence” are not defined in new Section 80E, and therefore create potential problems of interpretation for those who may live in Scotland yet work in England, or vice versa, including those living on the Scottish-English border.

[Lord Maxton]

There are, of course, people who live in Scotland, who even work in Scotland, but who are paid from England or elsewhere in the United Kingdom. They, too, create a problem because, as far as I am aware, the PAYE system does not depend on where you live but where you work or who you are employed by.

[The Duke of Montrose]

My Lords, this is the type of complication that we are talking about. In fact, the way the Bill is at the moment, it will practically be a question of where you spend the night. There are commuters from Glasgow or Edinburgh to London, and a variety of public office holders, who may have a place of residence in Scotland yet work for considerable periods in England or Wales, such as Members of the House of Lords, who are not included in new Section 80D(4), or Supreme Court judges. If a clause such as this remains, should the Bill not contain an obligation for each individual to state what he regards as his main place of residence?

New Section 80E also highlights the issue of split-year residences. Unfortunately I just missed the debate immediately preceding this, but I thought that my noble friend Lord Forsyth would cover the point. Her Majesty’s Revenue and Customs currently applies, in extra-statutory concession A11, split-year treatment to individuals who spend only part of the tax year resident in the United Kingdom. The concession means that, for example, an employee who comes to the UK for a secondment beginning on 1 June would be regarded as a non-UK resident and therefore non-taxable in the UK on his or her general earnings from the same employment for the period from 6 April to 31 May in that year.

The Law Society of Scotland questions whether setting up the provisions of new Sections 80D, 80E and 80F will require the creation of a similar extra-statutory concession. It would seem more sensible to create a robust system that does not rely on extra-statutory concessions in order for it to work—one whose fundamental architecture takes account of movement of people within the United Kingdom, and therefore within different tax zones, in one tax year.

--- Later in debate ---

[Lord Maxton]

My Lords, quite properly everyone has been raising the issue of those people who live and work across borders, work on ships and trains, or are lorry drivers. My concern to some extent is those people—I could be one of them—who live in Scotland but whose sole income is a pension from the other place, and whose tax office is Cardiff and not East Kilbride or anywhere in Scotland. I am still not quite clear how that tax office will know that I am a resident in Scotland. As far as I know, it does not have to know my home address. I would accept that if this debate was back in the 1990s. Of course, technology has moved on and it may be that we now have a database that allows the Inland Revenue to know exactly where you live. I rather doubt whether it has ever bothered to update the records and keep them up to date. What happens to someone who lives in Scotland and should be paying tax in Scotland but whose sole source of income and tax office are outside Scotland? How does that person know what tax they should pay in Scotland?

[The Duke of Montrose]

I wonder whether the noble Lord remembers getting a demand for taxes from the Inland Revenue which, presumably, was sent to his house because it knows where his house is.

[Lord Maxton]

Oddly enough, I am in the unfortunate position at one level but fortunate in another that about five years ago, if not longer, I got my last letter from the Inland Revenue. It said, “Please do not send us any more tax returns because we know what your income is. It has been the same for the last 10 years so don’t bother any more”. If I moved house, I am not sure that anyone would know where I had gone. I assume that you have to tell the Inland Revenue but the fact is that there is this problem. As far as I am aware, PAYE is paid on the basis of where you are employed, who employs you and the income that you are paid. That can come from a variety of sources and is taxed at source. I am never quite clear whether one’s residence is an important part of that issue.