Scottish income tax changes

On 14 December 2017 the Scottish Government published its Draft Scottish Budget for 2018-19 (see here).

A key announcement was the increase in the number of income tax bands and rates that will apply to non-savings and non-dividend income of Scottish taxpayers.  From April 2018, this income will be subject to a range of five different rates ranging from 19 to 46 percent.

This change further increases the divergence between Scottish Income Tax and income tax in the rest of the UK which began with the freezing of the higher rate threshold for Scottish taxpayers in 2017-18.

Scottish taxpayers who receive savings and dividend income will continue to be subject to the UK-wide rates and bands for those sources of income.

Who is subject to Scottish Income Tax?

  • Scottish Income Tax is payable by individuals who live in Scotland.
  • Individuals who live outside Scotland are not subject to Scottish Income Tax, regardless of their perceived nationality, country of origin or the location of their work.
  • If an individual has homes in both the UK and Scotland then they will need to determine which is their main home. This will normally be the one in which they spend the most time, but could be another property depending on facts and circumstances (e.g. location of personal possessions, family, banks account and GP registrations etc.) 

More information on who is subject to Scottish Income Tax can be found here.

What do employers need to do?

HMRC are responsible for informing the employer which employees are subject to Scottish Income Tax – there is no need for employers to make the decision.

Where HMRC believe an employee is subject to Scottish Income Tax they will be issued with a tax code starting with an ‘S’.

Employees need to inform HMRC if they move house to ensure they receive the correct tax code.  The easiest way to do this is through their personal tax account (see here for more details).  Employers cannot notify HMRC of employee changes of address, but should encourage employees to update their details with HMRC as soon as possible where they are aware of a move.

Posted in: Employment