Brexit: Scotland devolves VAT?

When the UK leaves (‘Brexit’) the European Union, Scotland may seek to devolve from the UK control of VAT charged within its borders. This is currently forbidden, as EU rules require that VAT be raised at the national level. In the UK, this embraces all four Union country members, including Scotland.

Since the Scottish VAT 2016, a range of tax powers have been moved from London Westminster to Holyrood, the Scottish Parliament. The principle one is Income Tax, which accounts for approximately two-thirds of Scottish government’s revenues – and gives over 30% control to Holyrood of Scottish-raised taxes.  Corporation Tax and VAT remain the large other taxes. Under the Scottish Act 2016, Holyrood does receive a proportion of VAT raised in Scotland.

As a full member of the EU VAT regime, the UK is not allowed to devolve any rule-setting, rates or local variations within its borders. VAT at the national level-only is one of the key pillars of the EU VAT Directive.

On Brexit, potentially not before 2020, this restriction would be lifted. Scottish politicians may be keen to take control of local VAT to extend their spending powers and diversify away from Income Tax revenues. Scottish VAT could add over 50% to Holyrood’s existing budget.