From 6 April 2016, the income tax rates set by the UK government that apply to the ‘rest of the UK’ (rUK) will be reduced by 10p in the pound for Scottish taxpayers, and increased by the Scottish Rate of Income Tax (SRIT).
The Scottish government will announce the SRIT by the end of November 2015. As yet, we have no indication if this will be higher, lower, or the same as the rUK rates. However, the tax bandings for the basic, higher and additional rates of tax will be the same for Scotland and the rUK for the 2016/17 tax year.
What is a Scottish Taxpayer?
A Scottish taxpayer is a person who is resident in the UK for tax purposes and who has his or her sole or main place of residence in Scotland for all or most of the tax year. It doesn’t matter where the employer is located; if an employer is based in Cornwall but has an employee who lives in Scotland, the employer must operate the Scottish tax code system.
It is the responsibility of HMRC to identify those individuals who will be Scottish taxpayers and not the employer. There will certainly be people who work and perhaps live both sides of the border, and HMRC will issue more detailed guidance on their tax status later this year.
Scottish Tax Codes
Scottish taxpayers will have their tax codes prefixed with the letter ‘S’. HMRC systems will assess and assign the appropriate tax code after the first full payment submission (FPS) is received for the 2016/17 tax year. HMRC will then notify the employer of the correct tax code to use.
Confusingly, there will be no Scottish emergency tax code. Where an emergency tax code is required, a rUK emergency tax code will used.
From the 2016/17 tax year, HMRC will report the amount of Scottish and rUK Income Tax paid on an individual’s annual tax summary letter.
The Scottish Taxpayer status applies for a full tax year. If an individual moves in or out of Scotland in a tax year, then their status may not change until the end of that tax year.
When an employee starts a new job, there will be no amendment to the starter checklist or employee declaration to note someone as a Scottish taxpayer – as HMRC will determine the taxpayer’s status from their address.
No action is required now, but all eyes will be on Finance Secretary John Swinney in November to see if he announces any variation in the Scottish Rate of Income Tax.