Income tax: correcting for earlier optimism

Reading Time: 4 minutes

On 18 July 2019 HMRC published ‘Scottish Income Tax: Experimental Statistics 2016-17 & 2017-18’. This includes final non-savings, non-dividend (NSND) income tax receipts for 2017-18 which will directly impact the Scottish budget in 2020-21. There are two parts to this publication – the outturn data for 2016-17 and 2017-18, and data for the year 2018-19 taken from HMRCs Real Time Information pay-as-you-earn (PAYE) system.


The headline figure in this publication is the confirmation of the outturn data for 2017-18, and therefore the reconciliations that will be required in the 2020-21 Scottish budget. This is confirmed as being £204m, which is slightly less than the £229m forecast in the Scottish Government’s Medium Term Financial Strategy published in May 2019. The reconciliation reflects the difference between forecasts made in late 2016 (when the 2017-18 budget was set) and the actual outturn for both Scottish income tax receipts and the block grant adjustment. In both cases, the original forecasts were too high. The difference between the actual NSND income tax receipts and the original forecast for 2017-18 is £941m, but this is partially offset by a reduction of the Block Grant Adjustment of £737m, giving the net reconciliation of £204m. This will impact the 2020-21 Scottish budget, where the Scottish Government will need to either raise taxes, cut spending or utilise reserves/ borrowing to make up this shortfall.  (For further discussion of reconciliations, see this SPICe blog.)

HMRC’s data also includes more information on the breakdown of the outturn data, including details on the make up of Scotland’s NSND tax base and how this has changed from 2016-17 to 2017-18.


The chart above shows quite an interesting trend in Scotland tax base – while the number of taxpayers has fallen in 2017-18, the amount raised slightly increased. For the UK as a whole, both the number of taxpayers and the amounts raised have increased. As rUK income tax receipts grew faster than in Scotland, the Scottish share of total income tax fell (from 6.7% in 2016-17 to 6.6% in 2017-18). The average amount of NSND tax paid per taxpayer increased in both Scotland and the rUK between 2016-17 and 2017-18, and remains 19.7% lower in Scotland.


The two main components of NSND tax are self assessment (SA) returns submitted by individuals, and PAYE returns submitted by employers’ payroll. In Scotland, the majority of NSND taxation is collected through PAYE, although this reduced by 1.7 percentage points to 57.6%. For the remainder of the UK excluding Scotland, SA returns are the largest component.


*Other includes adjustment for uncollected amounts, relief at source and relief for gift aid.

HMRC also provide a breakdown of taxpayers grouped by which tax bracket they fall into. Scotland has a slightly higher share of basic rate taxpayers than the rest of the UK (rUK), a slightly lower share of higher rate payers and half the proportion of additional rate taxpayers. In both Scotland and the rUK, the number of additional rate taxpayers increased by 0.1pp, but the trends are different for basic and higher rate cohorts. In 2017-18 the UK Government raised the upper limit of the basic rate taxpayers from £43,000 to £45,000, while the Scottish Government maintained the limit at £43,000.


2018-19 data

In addition to the outturn data for years 2016-17 and 2017-18, HMRC publish data from their Real Time Information (RTI) PAYE system. This includes a monthly breakdown, and includes data for the financial year 2018-19. HMRC note that this data is not directly comparable to outturn data as it is not calculated on the same basis.  The RTI data suggest an increase of 5.9% in Scottish income tax receipts in 2018-19, compared to 5.1% growth in rUK receipts.

RTI and Outturn data comparison
  Outturn data RTI
2016-17 Scottish NSND £10,719m £9,986m
Share of total NSND 6.68% 6.93%
2017-18 Scottish NSND £10,916m £10,221m
Share of total NSND 6.61% 6.88%
2018-19 Scottish NSND n/a £10,828m
Share of total NSND n/a 6.94%

Source: HMRC

These statistics are marked as Experimental statistics – the experimental label does not mean that these statistics are low quality though, but rather that HMRC are still working on the style and content for the tables. Once development phase is complete HMRC will apply to the ONS to have these designated as National Statistics.

Key questions

First, the Scottish Government will have to account for the £204m in the 2020-21 budget, although as noted this is marginally less than the Scottish Government and the Scottish Fiscal Commission expected in May this year.

Why did the total number of NSND taxpayers fall in Scotland, but increase in UK? The increase in the personal allowance from £11,000 to £11,500 over these years is likely a factor, but the differing population trends will also play a part.  Differences in the composition of the tax base between Scotland and the rest of the UK could have important implications for future tax growth and – as a result – for future adjustments to the Scottish budget.  Another SPICe blog looks in more detail at how the Scottish tax figures and the Block Grant Adjustment impact the Scottish Budget.

Andrew Feeney-Seale, Senior Researcher, Financial Scrutiny Unit