Identifying Scottish Taxpayers

Many of you will be aware that the new Scottish Rate of Income Tax (SRIT) is due to be introduced from 6 April 2016. What this means is that from 6 April 2016 the Scottish Parliament will have the power to raise, or lower, the rate of income tax paid by Scottish taxpayers. This SRIT will only apply to income from employment, self employment, pensions and rental income. It will not apply to savings income such as bank interest and dividend income.

It should be noted that, at the time of writing this article, the First Minister has suggested that there will be no changes in 2016. However, Scotland’s Draft Budget will be announced on 16 December 2015 which may provide further details regarding their exact proposals.

Of course with any changes there will be some winners and some losers and careful consideration will have to be made as to who will pay the SRIT.

The SRIT will be paid by Scottish taxpayers, regardless of where their employer is based. Whether an individual is a Scottish taxpayer or not will depend on where they live, not where they work.

It should be noted that, in the first instance, the onus of identifying Scottish taxpayers will be on HM Revenue & Customs (HMRC). HMRC will be using the information they hold on postal addresses from the PAYE Real Time Information system in order to identify Scottish taxpayers. Individuals will receive a letter from HMRC within the next few weeks, advising that they believe them to be a Scottish taxpayer.   

Who, What, Where

In the majority of cases it will be easy to identify whether or not an individual is a Scottish taxpayer, however, not all cases will be the same. This will have particular relevance for businesses situated close to the Border (Armstrong Watson included).

Therefore, there are various factors which need to be taken into account when considering whether or not an individual is a Scottish taxpayer, including:

  • Place of residence
  • If more than one residence, the main place of residence, and
  • Where no place of residence (or main residence), day counting.

As you will note, residence is a big indicator towards identifying a Scottish taxpayer. In order to determine an individual’s residence, particularly where there is more than one, you must consider the ‘quality’ of time spent at each place not ‘quantity’. Some indicators of this are:

  • Where does the family spend its time
  • Where do children go to school
  • Where are the majority of possessions kept
  • If any pets, where are they located
  • Which address is used for correspondence including banks, credit cards etc., and
  • Where are they registered to vote

Anyone identified by HMRC as a Scottish taxpayer, will have their April 2016 tax code amended to begin with the letter ‘S’. The employer will then apply the tax code and pay any income tax as normal.

If all employees pay one rate of tax (either Scottish or UK) it is likely that employers will see very little change to their administration. However, where there is a mix of Scottish and UK taxpayers, businesses will need to be aware of the rules to ensure their employees are taxed, and ultimately paid, correctly.

As with all changes imposed on individuals and businesses being prepared is always going to be key. I would therefore suggest contacting ourselves or HMRC at an early date if you have any concerns or think you have an incorrect tax code.

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