Tax changes outlined in this week’s Budget at the Scottish Parliament will have a “significant negative impact” on the tech sector, a trade body has warned.
ScotlandIS – the cluster management organisation for Scottish tech firms – said Holyrood’s change to the tax bands will make the country less competitive in the UK and globally.
Ministers said a new income tax band will raise additional revenue to deliver high quality public services and ‘support the social contract with Scotland’s people’ following Tuesday’s Budget.
The ‘advanced rate’ band will apply a 45 per cent tax rate on annual income between £75,000 and £125,140. Other changes include an additional 1p being added to the top rate of tax and the starter and basic rate bands increasing in line with inflation.
ScotlandIS CEO Karen Meechan said: “Although we were very pleased to see an increase in funding earmarked to support digital connectivity, it was less encouraging to see tax changes that will have a significant negative impact on the competitiveness of technology companies when it comes to attracting and retaining the very best talent.
“While we do, of course, recognise we are operating in a particularly challenging economic climate, we believe the new income tax band fundamentally makes Scotland a less attractive place to work and live.
“Feedback from our members consistently highlights attracting staff as one of the biggest barriers to growth for the Scottish tech industry, and this change simply exacerbates that. Our members will now face even greater pressure to increase salaries in order to compete with rival companies hiring south of the border, something which will inevitably restrict the competitiveness of Scottish tech companies. We now look forward to reading the detail of where the additional connectivity investment will be spent and how it might benefit our members.”
David Ovens, joint managing director of investment firm, Archangels, said: “Scotland already has a narrow tax base – only 33,000 pay the top tax rate and 40 per cent pay no income tax. Repeatedly raising taxes on this limited population risks driving away top earners on whom the system relies. Lowering taxes to attract even a small fraction of the much larger base in rUK could stimulate economic growth far more than further strained tax hikes on the existing base without considering long-term consequences. Rather than reactive tax increases, Scotland needs a strategic, long-view approach to cultivate sustainable economic prosperity.”