VAT is an indirect tax levied on the purchase of many goods and services. It is reflected in the price paid when items are bought. VAT can either be charged at 20 per cent (standard rate), five per cent (reduced rate) or zero per cent (zero rated).
VAT Forecast - December 2018
Source: Scottish Fiscal Commission (2018) Scotland's Economic and Fiscal Forecasts December 2018
The Scotland Act 2016 states that receipts from the first 10p of standard rate of VAT and the first 2.5p of reduced rate of VAT in Scotland will be assigned to the Scottish Government's budget. VAT will be the second largest source of tax revenue for the Scottish Government, after income tax. VAT assignment will be implemented in 2019-20 as part of a transitional period where there will not be an impact on the Scottish Government's budget.
VAT being assigned rather than devolved means the Scottish Government will not have any direct policy control over VAT. VAT will continue to be collected by HMRC at a UK level, and the amount of tax assigned to Scotland will be estimated using a model developed by HMRC, HM Treasury and the Scottish Government.
The Commission forecasts the VAT assigned to Scotland from the last available outturn year (from the assignment outturn model) up to the present year, and for five years into the future. Our first full VAT forecast isincluded in our Scotland's Economic and Fiscal Forecasts - December 2018 publication, which accompanies the 2019-20 Scottish budget. More details on our approach to forecasting assigned VAT can be found in our Value Added Tax (VAT) Approach to Forecasting - September 2018.
Scottish Fiscal Commission (2018) Scotland's Economic and Fiscal Forecasts December 2018