Tax Voice

Remote working from Scotland

15 October 2021
18 months on from the first coronavirus pandemic lockdown, there seems to be a growing sense that life is starting to move on. Many employers, including some government agencies, have announced or are consulting on new ways of working that build on what has been learnt during the pandemic about our ability to work remotely and flexibly.

Different ways of living and working

While it is clear that hybrid, flexible and remote working will not be suitable for all sectors of the economy, significant numbers of office workers may well be attracted by these options. The recent residential property boom was reported to have been fuelled, at least in part, by a desire for more space to accommodate home working, as well as a better quality of life and work:life balance.

There has long been a trend of executives basing themselves and their families in different parts of the country and then commuting weekly to their place of work. However, this option may become open and attractive to more people, particularly if they are not required to be in the office as frequently as in the past.

Tax consequences?

But for those considering locating to a different jurisdiction within the UK, there could be tax consequences. The devolved administrations in Scotland and Wales have some control over income tax and although Wales is currently aligned with England and Northern Ireland, Scotland has had different tax rates and bands applying to non-savings and non-dividend income since 2018. For example, in the 2021/22 tax year, Scottish taxpayers start to pay higher rate tax at 41 per cent on such income over £43,662 (compared with 40 per cent on income over £50,270 in the rest of the UK) and pay a top rate of tax at 46 per cent on income over £150,000 (compared with 45 per cent elsewhere).

Scottish taxpayers

For individuals considering locating to Scotland, care must be taken to establish whether or not they are a Scottish taxpayer, noting that only UK tax residents can be Scottish taxpayers. This designation does not relate to where a person’s employer is based or even where work is carried out, but instead looks at the individual’s close connection to Scotland, which focuses on the location of the individual’s main place of residence.

If the individual has only one place of residence and it is located in Scotland, they will be a Scottish taxpayer. Conversely, if that place of residence is located elsewhere in the UK, they will not be a Scottish taxpayer.

If the individual has more than one place of residence in the UK at the same time, consideration needs to be given to which is their main residence. This is not necessarily the place where they spend most time, with the test considering the quality of connection based on the particular facts and circumstances. Detailed guidance is available on this subject, but where an individual’s family home is in Scotland, their children go to school in Scotland, but they spend some or all of their working time in another part of the UK, perhaps living in a small flat there, the main residence is most likely to be in Scotland and they will be designated a Scottish taxpayer.

If, on looking at the facts of a case it is impossible to decide which residence is the main residence, it is then necessary to count the number of days spent in each different part of the UK (ie England, Scotland, Wales and Northern Ireland). Where the number of days spent in Scotland is greater than the number of days spent in any other part of the UK, the individual will be a Scottish taxpayer.

Year of relocation

Another point to be aware of is that Scottish taxpayer status applies for the whole of a tax year and there is no split year treatment available when changing location within the UK. This means that, for example, where an individual relocates from England to Scotland part way through the tax year and then spends more than 183 days of that tax year in Scotland, any earnings from their time working in England will be subject to Scottish rates of income tax.

It is important that Scottish taxpayer status is notified to HMRC so that accurate coding notices can be issued to employers; failure to do so could result in an unexpected tax liability at the end of the tax year

It’s not all about tax

Tax is only one part of the equation to be thought about when considering relocating, and there are other financial consequences to living in Scotland, such as free prescriptions and no university tuition fees, which may offset any additional tax liability.

While Scotland is further along its devolution journey than Wales, there could be changes to the tax landscape there in future as well. There are many factors to be considered in such a major life change; however tax may play a small but important part in the decision.

For more information, please get in touch with Shirley McIntosh or your usual RSM contact.