Changes to Income tax for Scotland from April 2016
April 2016 sees a change in the tax regulations that will affect Scottish taxpayers. The UK income tax for Scottish taxpayers will reduce by 10p in the pound and at the same time a new Scottish income tax will be levied in its place. The rate of Scottish income tax will be set by the Scottish government and it can be 10p or more or less than 10p.
The basic, higher and additional earning bands will continue to be the same for SRIT and the rest of UK. The amount of income tax paid according to the reduced UK rates will go the UK government while the amount of income tax paid according to the SRIT defined rates will go to the Scottish government. The Scottish income tax will not apply income from savings and dividends. These will continue to be subject to UK income tax rates.
If the UK basic, higher and additional rates of income tax were 15%, 25% and 35% respectively and the Scottish government set the single rate to 11%, then the liability of the Scottish taxpayers will be 16%, 26% and 36% for the three earning bands.
On the other hand if the Scottish single rate was reduced to 9% then the liability of the Scottish taxpayers will be 14%, 24% and 34%.
If the Scottish government sets the single rate as 10%, then it will bring no changes to income tax rates for the Scottish taxpayers.
Identifying Scottish Taxpayers:
Scottish taxpayers will be identified by the place they live in rather than the place they work in. So if you are a person who is a UK resident for tax purposes and your main place of residence is in Scotland then you are a Scottish taxpayer. The HMRC will identify and notify individuals who are Scottish taxpayers.
HMRC will assess and assign the tax codes to the individuals it identifies as Scottish taxpayers. The Taxpayers will be identified by the letter ‘S’ prefixed on their tax code. A change of address has to be notified to the HMRC, which will then change the tax code if needed.
Additional Rate Taxpayers
The additional rate taxpayers make up a huge part of the Scottish population. In Scotland, almost one in seven additional rate taxpayers is a part of the health industry or in social work. These taxpayers account for a large amount of income tax liabilities and often react the most to changes in income tax rates. Some of the ways in which additional taxpayers may react to the changes in SRIT are:
- Delaying or pulling their income forward
- Receiving dividends instead of salary or increasing their pension contributions
- Paper or physical migration of their residence
The Scottish Income Tax Rate will be effective from April 6, 2016, and Scottish taxpayers will soon have information on the tax rates. This will allow them to review their tax planning efforts to ensure savings.