From 6 April the full impact of devolved income tax in Scotland will be felt for the first time. The higher rate threshold will be frozen at £43,000 in Scotland while increasing to £45,000 in the rest of the UK. Scottish taxpayers will be faced with higher tax bills where they have earnings, pension and rental income in that range.
Making sure that Scottish taxpayers are correctly identified has been an HMRC project for around 18 months and those with Scottish addresses should have had correspondence notifying them of their status. However, these are not always correct and the onus is on the taxpayer to ensure they are correctly registered. Now that there is potentially tax at stake, getting it wrong could incur penalties and interest.
Those who pay their tax through PAYE should already have a tax code prefixed with 'S' to identify them as Scottish taxpayers. For employers, all computerised payroll systems should now be able to cope with these and calculate the tax correctly. For those in self-assessment, tax returns now come with a tick-box to notify Scottish taxpayer status.
For the vast majority of Scottish taxpayers, their status will be obvious. If you are UK tax resident, your only home is in Scotland, you live and work in Scotland, then you will be a Scottish taxpayer. For others it may not be so obvious.
Students, offshore workers, travelling salesmen, long-distance lorry drivers are all examples of situations where taxpayer status may not be obvious and a more detailed review of circumstances will be required, as are the internationally mobile with homes in multiple countries.
What about the senior executive working London during the week and keeping a flat there? She potentially spends more time in England than she does in Scotland, but is that enough to take her out of the Scottish tax net? Scottish taxpayer status depends on a 'close connection' to Scotland and so if her husband and children live in the family home in Edinburgh, where she spends weekends and time off, then she will be a Scottish Taxpayer due to her close connection to the home in Edinburgh.
The Chancellor in his Budget speech spoke often of fairness in the tax system. Our senior executive here will pay £400 more in tax next year than her colleague who lives in Guildford earning the same salary for a similar position. Is that fair?
For more information please contact Shirley McIntosh, or your usual RSM contact.