The Scottish Rate of Income Tax
07th March 2016
The Scottish rate of Income Tax (SRIT) will start on 6 April 2016. The Scottish rate of Income Tax was introduced in the Scotland Act 2012 and gave the Scottish Parliament in Holyrood new powers over income tax rates from April 2016, the start of the new tax year.
What is The Scottish Rate of Income Tax?
The Scottish Government has proposed that the Scottish rate will be 10% for the tax year 2016 to 2017.
Will I pay more tax under the Scottish Rate of Income Tax?
No, there is no overall change to the Income Tax rate you pay – whether you pay the basic, higher or additional rates.
- The Scottish Rate of Income tax applies to your wages, pension and most other taxable income.
- Your Personal Allowance - the amount of income you don’t pay tax on - stays the same.
- You’ll pay the same tax as the rest of the UK on dividends and savings interest.
How does the Scottish Rate of Income Tax work?
UK Income Tax rates will be reduced by 10% for people living in Scotland.
You’ll then pay the Scottish rate of 10% on top of your UK rate. For example, if you pay tax at the basic rate of 20% this will reduced to 10%. You’ll then pay the Scottish rate of 10% on top of this, giving a total of 20%.
There is no overall change to the Income Tax rate you pay – whether you pay the basic, higher or additional rates.
What do the changes in the Scottish Rate of Income Tax mean?
It's really about how much each government gets to spend from the income tax collected. Under these new rules, some of the Income Tax collected under the Scottish rate will fund the Scottish government, and the rest will fund the UK government.
They won't really make any practical difference to you day to day.
Do I need to do anything if I live in Scotland but work elsewhere in the UK?
If the address HMRC holds for you is in Scotland, you’ll be sent a letter to check your address is correct. These letters started to go out on 2 December 2015.
You’ll be classed as a Scottish taxpayer if the address HMRC holds for you is in Scotland. It’s your responsibility (not your employers’) to notify HMRC if you change your address.
If you are traveling long distances for work, and staying in accommodation away from home then you may be due a tax refund on your expenses.
How do I know if I need to pay the Scottish Rate of Income Tax?
Where a taxpayer lives will determine whether or not they are a Scottish taxpayer. It should be a simple process:
- If you live in one place during a tax year, and it’s in Scotland, you’ll be a Scottish taxpayer.
- If you have more than one place of residence in the UK, and one of those is in Scotland it will need to be worked out which is your "main place of residence" - based on the number of days spent living in each place during the tax year.
- The place where you have spent the longest amount of time will be counted as your "main residence". If that is in Scotland then you will will be deemed to be a Scottish taxpayer.
Remember, it’s where you live, not where you work, that decides whether you’re a Scottish taxpayer.
If you move to or from Scotland, have more than one home, or don’t have a home, you’ll need to work out if you’re a Scottish taxpayer. You can do this on the HMRC website:
- If you move to or from Scotland during the tax year
- If you live in more than one home
Will I need to do anything differently?
If you pay your Income Tax through your wages (PAYE), HMRC will advise your employer to treat you as a Scottish taxpayer so you don’t need to do anything.
If you fill in a Self Assessment tax return you’ll declare if you’re a Scottish taxpayer on the return.
While most people will not need to keep any additional records, it's always sensible to keep a copy of all your expenses and financial documents that may be needed to show your income and expenses wherever you pay tax. This may include things such as bills, subscriptions, travel expenses, local parking permits, memberships, registrations and bank statements.
If you are already a RIFT client you will not need to do anything differently at all as we will handle all the necessary paperwork and calculations for you.
If you have any questions then give us a call.
Will my tax code change if I am a Scottish Tax Payer?
If you are counted as a Scottish taxpayer by HMRC or reside,
A new 'S' prefix will be introduced to the tax code of Scottish taxpayers, and payroll software must be able to apply variable rates of SRIT.
Read more about tax codes.
Is anything excluded from the Scottish Rate of Income Tax?
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.
HM Revenue and Customs (HMRC) will collect the Scottish rate of Income Tax on behalf of the Scottish government.
National Insurance contributions are unaffected by the introduction of the Scottish rate of Income Tax.
How will the Scottish Rate of Income Tax affect employers?
HM Revenue and Customs (HMRC) will identify who’ll be a Scottish taxpayer. Employers and pension providers don’t need to decide this and should only use a Scottish tax code if HMRC tell them to.
The new rules will trigger a change in PAYE procedures, and payroll software must be able to apply variable rates of SRIT.
You won’t need to change how you report or make payments for Income Tax to HMRC other than to apply the Scottish rate of Income Tax code to your Scottish taxpayer employees.
You must still apply the Scottish tax code for a Scottish taxpayer even though, overall, the amount of tax they pay isn’t changing.
You can read HMRC's guidance for employers in their Employee Bulletin: June 2015
The Scottish Parliament in Holyrood is set to acquire additional devolutionary powers in the future and this may result in further changes to tax rules. We'll always post about the latest updates here.
RIFT are the UK's leading tax rebates and tax return specialists, who've been in the business since 1999. If you think you could be due tax back, use our free tax rebate calculator to get an instant estimate of how much cash you could be owed.