When we look at Wales and tax, it is important to recognise that there are two important distinctions...
The Government of Wales Act (GOWA) 2006 is the main legislation regarding the competence of the Welsh Government to make its own devolved legislation. The Wales Act 2014 amended GOWA to provide for the sharing of Income Tax from 2019/20. This allows the creation of Welsh Rates of Income Tax (WRIT) for Welsh taxpayers.
A shared tax (like the Scottish Rate of Income Tax in 2016/17 and Scottish Tax from 2017/18) is where some of the responsibility and decision-making is made at national level but, importantly, administration and collection remains with HMRC, the central UK tax collection agency.
A shared tax is not the same as a devolved tax.
The same 2014 Act that amended GOWA fully devolves two taxes to the Welsh Government from April 2018:
- Stamp Duty Land Tax (SDST) renamed Land Transaction Tax (LTT) and
- Landfill Tax, renamed Landfill Disposals Tax (LDT)
In January 2018, the Welsh Government produced a ‘Devolved Taxes Update’ document outlining the legislation that they had passed and giving details of the new LTT and LDT rates from 01 April 2018.
It is important to remember that a devolved tax is one that is fully under the control of the Welsh Government. The collection and administration will be performed by the Welsh Revenue Authority (WRA), the UK’s third tax collection agency (together with Her Majesty’s Revenue and Customs and Revenue Scotland).
The 2014 Act also gives Wales the power to create additional taxes on any area that is fully devolved to them. On 04 July 2017, Professor Mark Drakeford, Cabinet Secretary for Finance ‘kick-started’ a debate on these and asked the public for proposals. The Bevan Foundation made suggestions in their June 2016 report and the outline Budget on 03 October 2017 announced a ‘shortlist’ of 4 new potential taxes. These were open for consultation between 06 November 2017 and 05 December 2017.
In February 2018, Professor Drakeford made a statement to the Welsh Assembly about these and their future development in 2018:
A levy to support social care
This was discussed in recognition that Wales has an aging population with increasing demands on social care. The levy idea appears to involve a contribution by people whilst working that would contribute towards the cost of care in later life. The poll resultsindicated an almost 50/50 split for those respondents in favour and those against.
Professor Drakeford concluded that this would not be progressed as a new devolved tax measure in the immediate term, though the idea of a levy is certainly not dead and buried and work will carry on during 2018.
A tourism tax
This tax would be on tourists visiting Wales and would be payable to support the services that are important to communities and the people on tour. 63% of respondents were either against or strongly against this tax.
Professor Drakeford said in January that ‘a national tourism tax would not best reflect this breadth of local circumstances. We will now explore ways in which local authorities could be given permissive powers to develop and implement a local tourism tax’.
So, no devolved tax but a local tax that will be developed in time with the tourist industry, the Welsh Local Government Association and other interested stakeholders.
A disposable plastic tax
This would involve an ‘appropriate tax’ levied to change the behaviour towards the use of disposable plastic. 78% of respondents indicated that they either agreed or strongly agreed with this proposed tax.
What surprised me was that Professor Drakeford said Wales had the third best recycling rate in the world. So, had it not been for the UK Government’s announcement at Autumn Budget 2017 that there would be a UK call for evidence, I believe that this would have been the preferred tax for future development. As it is, the ‘Tackling the plastic problem’ call has effectively blocked any Wales-only initiative and Professor Drakeford said that Wales would contribute towards this call, sharing Welsh views.
Nevertheless, he said, Wales will continue to work on a stand-alone disposable plastics tax. However, that is not the proposal that will be put forward to the UK Government, where approval is required in both Houses of Parliament.
A vacant land tax
This would be a tax on holding vacant land, thereby encouraging development is the land is suitable for building development. 60% of respondents either agreed or strongly agreed that development of a tax policy should be progressed.
Professor Drakeford said that he would use the Republic of Ireland’s vacant land sites levy as a model to ‘test’ the powers that were afforded under the 2014 Act. Such a tax is sufficiently narrow in scope to be able to test the devolution powers. As such, he confirmed that he would move formally to seek a ‘transfer of competence’ from Westminster to the National Assembly and would be writing to the Chief Secretary to the Treasury.
Devolved taxes are not the same as shared taxes.
- On the immediate horizon, Wales has the revenue-generating Land Transaction Tax (LTT) and Landfill Disposals Tax (LDT). These do not impact employers or UK payroll professionals but they are significant
- On the medium horizon we have Welsh Rates of Income Tax from 2019/20. This will happen but whether the rates differ for Welsh Taxpayers remains to be seen. This willimpact HMRC, software developers, The Pensions Regulator, employers and UK payroll professionals
- In the longer term, we have to be very mindful that the Welsh Government have the power to set its own taxes in certain areas. This looks set to start with the vacant land tax and I cannot see that this impacts us. However, Wales has significant devolution powers, perhaps greater after EU Exit. This may impact the profession in the future