The Scottish rate of Income Tax employer guidance

The Scottish rate of Income Tax was introduced in the Scotland Act 2012 and will apply from 6 April 2016. The Scottish Parliament may decide that Scottish taxpayers will pay a different rate of Income Tax to the rest of the UK and HM Revenue and Customs (HMRC) has recently issued technical guidance on who will be a Scottish taxpayer and some guidance for employers.

The new Scottish rate of Income Tax will not apply to income from savings such as bank interest or dividend income and Scottish taxpayers will pay tax on savings income at the same rate as the rest of the UK. The Scottish government is expected to announce the proposed Scottish rate of Income Tax for 2016/ 17 in its 2015 draft budget.

Whether an individual is a Scottish taxpayer will depend on where they live and not where they work. From April 2016 a Scottish taxpayer’s tax code will begin with the letter ‘S’ and HMRC will identify who will be a Scottish taxpayer. Employers do not need to decide this and should only use a Scottish tax code if HMRC tell them to.

Employers will not have to change how they report or make payments to HMRC other than to apply the Scottish rate of Income Tax code to Scottish taxpayer employees. The Scottish rate will not need to be shown separately on P60s or payslips although the Scottish tax code should be shown.

If employers do not receive a P45 from a new employee or if they are unsure which tax code to use, HMRC advise a non-Scottish UK tax code and rate should be applied and they will confirm if this should be amended. Forms P6 and P9 will be amended to show the correct tax code for UK and Scottish taxpayers and Scottish tax tables will be provided for Scottish tax codes.

If an employee changes their address in year, HMRC will reassess their taxpayer status and reconcile their tax using their current processes. It is the employees responsibility, to notify HMRC of a change of address, not the employers.

Should you require further assistance with this or any other tax matter, Mairi Drummond of Rennie Welch LLP can be contacted on (01573) 224391 or by email at mairi.drummond@renniewelch.co.uk.