Why are Scottish chartered accountants are calling for tax reform?
ICAS members highlight findings in a recent survey that show Income Tax and National Insurance, ahead of Business Rates, Council Tax and IHT, as top priorities for wider economic competitiveness and growth.
Willie Haughey, a Labour peer, is pressing First Minister John Swinney to get serious about Scotland’s deficit and the tax system. Our Big Interview with Andrew Malcolm, one of Scotland’s leading family business figures, repeats the sentiment about tax, saying that implications of the inheritance tax system is damaging for family companies and succession planning.
And now Scotland’s leading accountants are calling for the reform of the tax system in Scotland.
Lord Haughey, who with his wife Susan built his City Refrigeration Services company from four employees to a workforce of more than 14,000 over the past 40 years, fired his warning to the new Scottish Government, saying the £4.7bn deficit was inadequately debated during the election campaign.
He argued that many politicians were actively making the deficit issue worse by promising additional free services without identifying how to pay for them.
“To have a deficit of £4.7bn in a country this size, if Scotland was a business it would be bankrupt. We would have the administrators in just now. So if that is not the number one priority for the people running the country, then I do not know where we will be.”
Budget and Business Rates
Lord Haughey said he was astounded that during the elections Swinney was uninterested in hearing about the misery caused by the business rates revaluations, which resulted in massive hikes for thousands of family businesses.
It is clear that Jenny Gilruth will face much scrutiny when she makes any announcements as cabinet secretary for finance and local government
Income tax and national insurance have emerged as the taxes most urgently in need of reform, according to a post-Scottish election poll of ICAS (Institute of Chartered Accountants of Scotland) members.
Findings show that more than twice as many chartered accountants (39 per cent) identified income tax and national insurance as the most urgent areas for tax reform than non-domestic rates (17 per cent), while council tax (16 per cent) and inheritance tax (10 per cent) ranked lower.
The data points to rising alarm across the profession about the impact of personal taxation on individuals, businesses and the wider economy at a time when economic confidence is already fragile and questions over Scotland’s tax competitiveness are intensifying.
The survey results also show a clear call for the Scottish Government to use its first six months to set out a credible long-term plan for economic growth and sustainable public finances.
When asked what would best support that growth, respondents identified targeted tax incentives, alongside greater stability and simplicity in the tax system as the reforms most likely to make a meaningful difference.
There is alarm about the impact of personal taxation on individuals, businesses and the wider economy
ICAS members - Personal Taxation Reform
Katie Close, director of tax at ICAS, said: “The strength of feeling around income tax and national insurance reflects the growing impact of fiscal drag, with frozen thresholds pushing more people into higher tax bands while eroding their real spending power.
“In Scotland, a complex system of multiple tax bands and steep cliff edges means some taxpayers now face higher marginal rates than elsewhere in the UK, a gap that risks undermining incentives, investment decisions and overall competitiveness. That is why accountants are calling for meaningful reform.”
Confidence in the Scottish economy remains subdued with more than three quarters (77 per cent) reporting a lack of confidence. The findings echo an ICAS survey published after the Scottish Budget, suggesting that economic concerns identified earlier this year have yet to be addressed.
Gail Boag, ICAS CEO, said: “The next five years will be pivotal for Scotland. The country is grappling with economic inactivity, weak growth, skills shortages, global uncertainty, and a rising budget deficit. Only long-term, ambitious policy-making will unlock the investment and sustainable growth the country needs.”
She added: “A stronger economy and a broader tax base depend on creating the right conditions for people and businesses to succeed.
“That means stable, predictable policy, a tax system shaped in genuine partnership with business, and real improvements in essential public services such as education, health, childcare, transport and housing.”