Scottish rate of income tax – 2016-17 rate announced!

December 17, 2015

• The Scottish rate of income tax (SRIT) is to be 10% for 2016/17 tax year, so the main income tax rates for Scottish taxpayers will be the same as for other UK taxpayers.
• Taxpayers, employers and pension providers must all comply with new rules and procedures that come with SRIT .
• Income tax rates north and south of the border may vary from 2017/18 tax year onwards.

Scottish Finance Minister John Swinney, possibly had is eye on the Holyrood elections next May when deciding to align overall income tax rates with the rest of the UK.

He made this announcement in his draft 2016/17 budget which he presented to the Scottish Parliament yesterday.

How does this affect individual Scottish taxpayers?

Individual Scottish taxpayers will pay the same income tax rates as the rest of the UK – 20% (basic rate), 40% (higher rate) and 45% (additional rate) for 2016/17.

For those individuals who complete a self-assessment tax return, they must declare their Scottish or non-Scottish taxpayer status on their tax return. They could face penalties for an incorrect declaration – even if there is no tax to pay.

From 2017/18 onwards, (when the new Scotland Bill provisions are expected to come into effect), the Scottish Government will be able to vary the income tax rates and thresholds applied to the non-savings non-dividend income of Scottish taxpayers. This will give the Scottish Government many new choices;  for example, it might:

• introduce a zero per cent rate band (this would be on top of the existing tax free personal allowance),
• reduce the basic rate,
• raise the higher and additional rates or
• lower the thresholds for those rates, or
• introduce extra rates and thresholds.

So in the future, Scottish taxpayers may face a very different tax scenario from fellow Brits south of the border.

How does this affect employers?

Employers and pension-providers need to ensure that they operate PAYE correctly, also on pain of penalties.

They will be issued with new ‘S’ codes for all Scottish taxpayers on their payroll, to ensure that the appropriate Scottish income tax rates are applied.

Even though the income tax rates for Scottish taxpayers will be the same as the UK rates for 2016/17, correct use of the ‘S’ codes will still be crucial in quantifying the revenues that will flow to the Scottish Parliament.

This is because the revenue collected by HMRC from SRIT will be paid to the Scottish Parliament rather than the UK Treasury. Tax receipts flowing to Holyrood from SRIT (as well as Land and Buildings Transaction Tax and Scottish Landfill Tax) will be matched more or less by a reduction in the block grant which is received from Westminster to fund devolved services such as the NHS, education and policing.

For further information on the Scottish rate of income tax, refer to Lothian Accounting blog article: https://www.lothianaccounting.com/scottish-rate-of-income-tax-does-it-affect-you/