Background to the report

The NAO has statutory responsibilities for auditing HMRC’s collection of Scottish income tax.

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The Scotland Act 2016 gave the Scottish Parliament power to determine the tax bands and rates (excluding the personal allowance) paid by Scottish taxpayers on all non-savings, non-dividend income from 6 April 2017. The Scottish Government receives all income tax revenue generated from non-savings, non-dividend income under Scottish income tax policy. The Scottish Parliament has set different income tax bands and rates in Scotland from the rest of the UK.

HM Treasury is responsible for paying Scottish income tax to the Scottish Government. HM Revenue & Customs (HMRC) administers and collects Scottish income tax as part of the UK tax system. It identifies taxpayers living in Scotland by applying a ‘flag’ in its systems that indicates they are subject to Scottish income tax rates and thresholds. HMRC has calculated that there were 2.9 million Scottish taxpayers in 2023-24 (2022-23: 2.8 million).

Following the end of each tax year, HMRC produces a provisional estimate of Scottish income tax revenue for that year. It calculates the final outturn the following year, once it has received further information from taxpayers and employers.

Scope of the report

This report assesses:

  • HMRC’s calculation of the 2023-24 income tax revenue for Scotland (the ‘outturn’) and assurance on the correctness of amounts brought to account;
  • HMRC’s estimate of the 2024-25 income tax revenue for Scotland and our view on the estimate methodology;
  • key controls operated by HMRC to assess and collect income tax;
  • HMRC’s approach to assessing and mitigating the risk of non-compliance with Scottish tax requirements; and
  • the cost of administering Scottish income tax – we provide assurance on the accuracy and fairness of these amounts in the context of costs incurred by HMRC.

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