The Scottish rate of Income Tax was introduced in the Scotland Act 2012.
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.
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 Scottish rate of Income Tax 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.
Identifying Scottish taxpayers
It’s where you live, not where you work, that decides whether you’re a Scottish taxpayer.
You’ll pay the Scottish rate of Income Tax if:
- you’re resident in the UK for tax purposes, and
- your 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 you is in Scotland you’ll be classed as a Scottish taxpayer. It’s your responsibility (not your employers’) to notify HMRC if you change your address.
Your April 2016 tax code will begin with the letter ‘S’ to show you’re a Scottish taxpayer.
If you pay your Income Tax through your wages (known as Pay As You Earn) HMRC will advise your employer to treat you as a Scottish taxpayer so you don’t need to do anything.
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 you.
National Insurance contributions are unaffected by the introduction of the Scottish rate of Income Tax.
Employers and Pension Providers
HMRC will identify Scottish taxpayers and tell employers the tax code to apply to their employees before the introduction of the Scottish rate of Income Tax. There will be no change to how employers report or make payments for Income Tax to HMRC other than to apply the Scottish rate of Income Tax code to their Scottish taxpayer employees.
HMRC will also provide this information to registered pension scheme administrators and pension providers to allow them to identify their Scottish taxpayer members.
Pension Relief at Source (RAS)
The UK government has agreed that registered pension scheme administrators and pension providers have until April 2018 to put in place the changes necessary to their IT systems that will allow them to claim Relief at Source (RAS) at the correct rate. Until then all RAS claims will be made at the UK basic rate.
The June 2015 edition of the Employer Bulletin contains more information on the Scottish rate of Income Tax.