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Home / Blog / How the new Scottish rate of income tax will affect you

How the new Scottish rate of income tax will affect you

8 October 15 | By: Jas Jhooty

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The Scottish rate of income tax (SRIT) comes into force on 6 April 2016. As an employer how might it affect you?

What is it?

The Scottish rate of Income Tax was introduced in the Scotland Act 2012. Some of the Income Tax collected under the Scottish rate will fund the Scottish government and the rest will fund the UK government.

The Scottish rate of Income Tax doesn’t apply to income from savings such as building society interest or income from dividends. This rate will stay the same for all taxpayers across the UK.

The Scottish government is expected to announce the proposed SRIT for the tax year 2016 to 2017 in its autumn 2015 draft budget.

HM Revenue and Customs (HMRC) will collect the Scottish rate of Income Tax on behalf of the Scottish government.

New rules

Depending on the level the Scottish Parliament sets the rate at Scottish taxpayers may pay a different rate of Income Tax to the rest of the UK.from 6 April 2016, regardless of where their job is based in the UK. If you’re an employer this might mean using a new type of tax code for Scottish employees on your payroll in 2016/17 and later years.

Scottish taxpayers

The new tax codes apply to individuals who have Scottish taxpayer status. This is anyone whose main home is in Scotland (rather than anywhere else in the UK) for a greater part of the tax year.

Identifying Scottish taxpayers

It is where your employee lives, not where they work, that will decides whether an employee is a Scottish taxpayer.

Employees will pay the SRIT if:-

  • they are resident in the UK for tax purposes, and
  • their main residence for most of the tax year has a Scottish postcode

HMRC will contact potential Scottish taxpayers before April 2016. If the address HMRC holds for your employee is in Scotland they will be classed as a Scottish taxpayer. It’s your employee’s responsibility to notify HMRC if they change their home address.

The Scotland Act 2012 contains the full definition of a Scottish taxpayer but where residency is not straightforward these examples of ‘close connection’ will help employees to decide.

National Insurance contributions are unaffected by the introduction of the Scottish rate of Income Tax.

Who decides?

Employers won’t be required to determine whether one of their workers has Scottish taxpayer status, that’s up to HMRC. However it is asking employers to ensure they keep their payroll records up to date with changes in their employees’ addresses to help assess their status.

Your responsibilities

Where HMRC decides one of your staff has Scottish taxpayer status you will be sent a special tax code to use. This will be apparent as it will be prefixed with an “S”. This will change the rate of tax the employee pays. As long as you update your payroll software for the start of 2016/17 it will take care of the calculations.

Movers

Employees can attain or lose their Scottish taxpayer status during a tax year. Where this happens their new status applies for the whole year. Where HMRC becomes aware of a change in status it will issue or withdraw an S-code. Any refund resulting from a change of code will be made through the PAYE system. Conversely, where an employee loses their Scottish taxpayer status, HMRC will recover any extra tax due direct after the end of the tax year.

Summary

The SRIT will affect those with Scottish taxpayer status. HMRC will decide who it applies to and issue a tax code prefixed by “S”. If you receive one, enter it into your payroll software. No other action is required.

For more information see the June 2015 edition of HMRC’s Employer Bulletin.

New Telephone Number

Finally, please note that we have recently changed our main telephone number from a 0845 prefix to 0345 548 3680. This is a much cheaper call rate for you whether you ring from a landline or a mobile. Please note to ring the new 0345 548 3680 number of you want up to the minute advice on any employment tax matter.

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