Written Statement - Collection and Management of Devolved Taxes

I am announcing today my preferred way forward for the collection and management of the first Welsh devolved taxes – Land Transaction Tax (LTT) and Landfill Disposals Tax (LDT).

The tax powers devolved in the Wales Act 2014 will enable us to design a fiscal regime that works much better for Wales –meeting the principles of fairness and simplicity, providing certainty, and supporting jobs and growth.  We will have better taxes, more suited to Welsh priorities, with more Welsh tax revenues spent in Wales and improved accountability.    

By 2018, the yield from the two UK taxes which the devolved taxes will replace is likely to be around £300m.  We will need to ensure the new taxes – which will be a small but significant component of the overall funding available for public services in Wales – are collected safely and securely.  And we will also need arrangements that enable taxpayers to comply with their obligations as straightforwardly as possible.

The Finance Committee’s recent inquiry into the collection and management of devolved taxes has made a positive contribution to developing the preferred way forward.  I am grateful to the Committee for their constructive work in this area and I have issued a formal response to their recommendations alongside this statement.

I have also been listening closely to the views of the business community.  They have told me that their key priority is a smooth transition to the new taxes in 2018, with as little disruption for taxpayers as possible.  This is particularly important for the many businesses who operate in both Wales and England.  This point was also strongly made in evidence to the Finance Committee.  

My Tax Advisory Group – which includes representatives from business, the Wales TUC, the third sector, local government,  and the accounting and legal professions, along with three expert members – has been another valuable source of advice.  A key consideration emerging from the Group has been the importance of ensuring that any organisation involved in the collection and management of devolved taxes is held appropriately to account for the service standards that they achieve.  

The Tax Collection and Management (Wales) Bill, which I intend to introduce to the Assembly next month, will create a new Welsh Revenue Authority (WRA).   The WRA will hold the legal powers of tax collection and management and retain ultimate responsibility for their operation.  It will develop Welsh tax expertise, capacity and capability, and will be accountable to Welsh Ministers, the National Assembly and Welsh taxpayers.  It will also take a role in certain elements of tax collection and management.  However, the Bill will also give WRA the power to delegate collection and management functions to other bodies.

I have been considering a range of options for how these functions should be organised to deliver the best possible balance of costs and benefits.  In particular, I have been focussing on options involving the WRA working with local authorities, HMRC and/or Natural Resources Wales.

HMRC have extensive knowledge and experience of operating UK taxes and Welsh tax payers are used to dealing with them.  Their collection and management arrangements for Stamp Duty Land Tax (SDLT) – which will be replaced in Wales by the new LTT – are widely held to be efficient and effective.  NRW lead on permitting of landfill sites in Wales, so already have excellent knowledge of the tax base and established relationships with the site operators who will be paying the new LDT. Local authorities already collect over £2bn of local taxes in Wales and have a record of high collection rates.

I am grateful for the positive engagement that there has been from all of these potential partners.  I have now confirmed with local authority representatives that it is not feasible for them at this stage to take on collection and management of devolved taxes.  I have, however, agreed the establishment of a joint working group with the WLGA to enable the sharing of information and tax administration expertise across local and central governments. I look forward to continuing the close working between the Welsh Government and local government  on tax matters we have established.

I am confirming today that my preferred way forward is for the WRA to work with HMRC to collect and manage LTT.  HMRC will undertake the transactional and routine compliance functions, while the WRA will undertake complex compliance, avoidance and enforcement work for LTT.  

I am also confirming that WRA  itself will undertake most of the collection and management functions for LDT, and will delegate compliance and enforcement of LDT to NRW.  In all cases, tax policy and strategy will be set by Welsh Ministers.

The extensive knowledge and experience of operating UK taxes that HMRC will bring to the WRA will aid the development of Welsh tax expertise, capacity and capability, and will increase the likelihood of a smooth transition, limiting the impact on Welsh taxpayers and businesses.  And the existing knowledge and understanding of the operation of landfill in Wales which NRW will bring will be of significant benefit to administration of LDT.

I intend to review the arrangements we put in place from April 2018 after three to five years of operation. Our Welsh public service landscape is changing and with possible changes in the devolution settlement, including the potential for further tax devolution.  This review will enables us to build on possible future opportunities.

Despite my representations, the UK Government is not prepared to transfer the funding needed to cover this new area of work.  So the additional cost of setting up and operating the collection and management arrangements for devolved taxes will fall to the Welsh Government.    I am committed to providing as much robust cost information as possible to the National Assembly for Wales during the scrutiny process for the Tax Collection and Management (Wales) Bill.  It is not possible at this stage to produce a robust estimate of the costs of set up or operations.  However, based on the evidence available, I am confident that the preferred way forward set out in this Statement is the most affordable option.  

In the autumn, ahead of the Stage 1 debate on the Tax Collection and Management (Wales) Bill, I will provide the Assembly with an update on work to establish collection and management arrangements.  This will be informed by detailed discussions around partnership arrangements with HMRC and NRW over the coming months, and will include initial estimates of set up and operating costs.