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The new Scottish rate of income tax

1 Mar 2016

2 minute read

The Scotland Act 2012 gave the Scottish Parliament landmark new powers to set an annual rate of income tax for Scottish taxpayers. The Scottish rate of income tax (SRIT) comes into effect from April 2016.

Under the new regime, with effect from 6 April 2016, taxpayers who are deemed to be resident in Scotland will pay two types of income tax on their non-savings income.

The main UK rates of income tax will be reduced by 10p for Scottish taxpayers, and the Scottish Parliament will levy the SRIT in its place. The Scottish Parliament has the choice of whether to reduce or increase the SRIT beyond 10p and there are no lower or upper limits.

In its draft Budget on 16 December 2015, the Scottish Government announced that the SRIT would be set at 10p in the pound for 2016/17.

What the changes mean

Where an individual is deemed to be a Scottish taxpayer by HMRC on account of where they live, or reside, the new rules will trigger a change in PAYE procedures, and this could affect employers that are based outside Scotland. A new ‘S’ prefix will be introduced to the tax code of Scottish taxpayers, and payroll software must be able to apply variable rates of SRIT.

Determining an individual’s tax status

Where a taxpayer lives either in Scotland or elsewhere in the UK, determining whether or not they are a Scottish taxpayer will be a simple process. If an individual has one place of residence, within Scotland, they will be a Scottish taxpayer.

For those who have more than one place of residence in the UK, it will be necessary to determine which has been their ‘main place of residence’ for the longest amount of time during the tax year. Should it not be possible to identify a main place of residence, it will be necessary to calculate the number of days spent in Scotland compared with those spent in other parts of the UK. The answers to these questions will determine whether or not an individual is deemed to be a Scottish taxpayer.

Keeping records

While many individuals will not need to keep additional records, for some it will be advisable to retain certain records and documents to help determine their taxpayer status. This may include a range of evidence, from household bills, subscriptions and local parking permits, to club memberships, GP registrations and bank statements.

Future changes

With additional devolutionary measures in the pipeline, business owners are advised to ensure that they keep abreast of the latest developments.

This article is for guidance only and it is always advisable to seek professional assistance. If you need further advise please contact us on 01865 292200 or email contactus@shawgibbs.com

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