Money Matters (Part 7) - Scottish Rate of Income Tax

HM Revenue and Customs has announced that it will be introducing the Scottish Rate of Income Tax as of 6^th April 2016, as part of the UK-Wide income tax system. The new scheme will be applied to the non-savings income of those defined as Scottish taxpayers. We’ve got the latest information you need on this topic below, so keep on reading!

Background

The SRIT was introduced in the Scotland Act 2012 to give the Scottish Parliament greater control over a significant proportion of the Scottish budget and how the money is raised. It replaces the Scottish Variable Rate (SVR), which has been in place since 1999 (but never implemented).

Scottish taxpayers will pay the SRIT. Their income tax rates will be calculated by reducing the UK basic, higher and additional income tax rates by 10p in the pound. The Scottish Parliament will set a single rate each year that will be added to the reduced rates.

The Scottish Government is expected to announce the Scottish rate for tax year starting 6 April 2016 in its draft budget in autumn 2015.

Scottish Taxpayers

The definition of a Scottish taxpayer is based on where an individual lives, not where they work. Therefore, a Scottish taxpayer is someone who is resident in the UK for tax purposes and who has their sole or main place of residence in Scotland for more of the tax year than in another part of the UK.

Individuals who move around the UK without having an identifiable main place of residence for the majority of the tax year will need to count the number of days they spend in Scotland compared to the rest of the UK. Additionally, there are also special rules for Scottish Parliamentarians.

HMRC are aiming to contact individuals in autumn 2015 if their records indicate they are a UK taxpayer and their place of residence is in Scotland. If an individual believes their status is incorrect they should contact HMRC. Further information, including relevant tax codes will be issued in early 2016.

Employers

For employers, HMRC will tell employers whom they should regard to be a Scottish taxpayer; identifying them with a Scottish tax code will do this. Similarly, HMRC will also be making changes to the Self-Assessment and Pensions relief at Source processes and systems. These changes will be a result of the introduction of the Scottish rate.

Furthermore, employers will also need to operate tax tables and perform a tax calculation appropriate to the SRIT set by the Scottish Parliament. However, the current processes that employers operate for income tax will continue. Employers will be advised of the appropriate tax code by HMRC, which they will need to apply to their employees’ payroll processes.