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Will Scotland retain IR35?

With the Scottish independence referendum just weeks away, some contractors have been asking if an independent Scotland will keep IR35.

Whilst Alex Salmond may be the only one to answer that question at present, the possibility may have moved a step closer with the passing of the Revenue Scotland and Tax Powers Bill. The Bill has recently been passed by the Scottish Parliament and regardless of the outcome of the referendum on18th September will alter the face of Scottish taxation.

Since the passing of the Scotland Act in May 2012 a number of powers have been delegated to the country but this current Bill will:

  • establish Revenue Scotland and provide for its general functions and responsibilities;
  • make provisions about the use and protection of taxpayer and other information;
  • establish Scottish tax tribunals;
  • introduce a general anti-avoidance rule (GAAR) in relation to artificial tax avoidance schemes;
  • set out powers and duties of taxpayers and Revenue Scotland, outline the arrangements and time limits for self-assessments and Revenue Scotland assessments;
  • make provisions for Revenue Scotland’s investigatory powers;
  • set out when penalties can be imposed;
  • make provisions for interest on unpaid tax;
  • provide for debt enforcement by Revenue Scotland; and
  • set out the review and appeals process;

The Bill was passed by the Scottish Parliament on 19th August and once it receives Royal Assent will establish Revenue Scotland as the tax authority for raising taxes on land transactions and on landfill waste disposal from April of next year, at which point Stamp Duty Land Tax and Landfill Tax will not apply north of the border. It is expected that new Scottish rates of tax will begin in April 2016.

For the time being therefore, what can be said with some certainty, is that should the good people of Scotland vote to break away from the Union, then contractors working in Scotland but who remain UK resident will not be able to escape IR35. However, would a non-IR35 Scotland, coupled with a more favourable rate of corporation tax be incentive enough to attract freelancers to settle there?


By Andy Vessey


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7 thoughts on “Aye-R35?”

  1. Davet

    Scotland will be more left wing than anything the UK has seen to date if it seperates. So there will be a huge push to close all tax benefits, and many like me would base themselves abroad.

  2. Fletch

    If there is a yes vote how would the Scottish tax be handled for Ltd company consultants from down south in the oil & gas game (and indeed for the Scots that reduce their tax burden in this manner)?
    Would there be a reciprocal agreement with the UK or would we be hit twice for the tax?
    Because if it has an adverse effect on peoples UK tax bills there will be a mass exodus of very important and numerous workers from and industry that current suffers a chronic skills shortage…

  3. AlfieJ

    It’s impossible to say at this stage. Should there be a Yes vote this is the sort of thing that would need to be clarified in the run up to an official independence day. Suspect there might be a rush to register limited companies north or south of the border depending on which tax regime is the most favourable.
    The bigger game changer though will be if rUK subsequently votes to leave the EU and Scotland remains within it!

  4. Mark

    1. Clearly Salmond would need every Euro? (not pound anyway!) he can raise so Scot HMRC will pursue with vigour
    2. Scotland will not necessarily be in the EU so there may well be no right to work or register here.

    I don’t really mind if they stay or go, if they go then both sides will lose but I should not want to be paying Scottish taxes in a year or two’s time when they are trying to balance the books!

  5. Robin L

    None of the tax treatment of o&g contractors has been addressed. Yes Vote? I for one will also leave – in fact I shall Iikely leave anyway as I suspect Scottish taxation will be after filling their coffers. King Salmond will need his gilded crown.
    Bloody politicians lining their own nest yet again

  6. Paul Healy

    Is this page sponsored by The Tory Party or UKIP, I cant really tell?

    Asa scottish Contractor, Imglad tosay that such narrow minded attitudes displayed above wont be so prevalent in an independent Scotland.

    Mind you, Im sure if those feared Corporation Tax cuts were to come to fruition, a few more SC123456 style company numbers would seem very appealing to English companies and contractors.

  7. C

    It’s important to realise that corporation tax cuts won’t make a massive difference to a contractor’s Ltd Co. Personal tax rates would make a difference.

    As others have commented below, Scotland will be a socialist country, at least until it learns that there’s no such thing as “free”, someone has to pay for it. But that could take many years for the Scottish electorate to see what’s happening.

    That would be particularly true if Scotland goes down the route of running a deficit, the option chosen by socialist governments the world over.

    If Scotland genuinely places oil revenues into an investment fund then balancing the books (while continuing to pay benefits at the levels the current Scots government wish to pay) will be impossible without tax rises.

    So their choice will be to raise taxes, run a deficit, or cut the size of the state.

    We know they won’t cut the state, so the others are their choices. If they run a deficit then they may get rid of IR35 to attract foreign workers (and that may help balance the books, but only if their businesses have a demand for such people), if they raise taxes, then IR35 is a tax, so expect draconian enforcement.

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