The Ministry of Defence (MOD) is to compensate thousands of military personnel based in Scotland against being left out of pocket because of differences between the Scottish tax regime and that used elsewhere in the UK, with top-up payments to be made each year
Troops resident in Scotland are liable to pay the Scottish rate of income tax (SRIT), under which the Scottish government has created new income tax bands and increased tax levels. This means those paid more than £26,000 pay more income tax than if they were based south of the border, with an additional penny added to the higher and top rates, bringing them to 41% and 46%.
The MoD says about 8,000 military personnel have been affected. They will now be reimbursed with an annual payment to ensure all military staff pay the same tax.
Payments will range between £12 and £1,500, and there will be a single retrospective payment for 2018/19, at a cost of around £4m. The case for the mitigation is to be reviewed annually.
Gavin Williamson, the Defence Secretary, originally asked the MOD in March to look at the potential impact of the move to SRIT, over fears the tax differential could make Scotland a less attractive posting, and the compensation package is the result of a consultation on the issues. The measures will apply to almost 75% of armed forces personnel liable for SRIT.
Williamson said: ‘It is completely wrong for the brave men and women of our armed forces to be punished for serving in Scotland by unfair raids on their pay packets by the Scottish government.
‘That’s why we have taken this urgent action to ensure that our troops are treated equally and fairly.’
Derek Mackay, Scotland's finance secretary, said the Scottish government’s ‘progressive’ tax system meant 70% of people in Scotland are paying less tax this year than last year for a given income.
He said: ‘We are fully committed to supporting the armed forces community and armed forces families in Scotland benefit from services not available elsewhere in the UK, such as free school meals, prescriptions and eye tests, and tuition fee and living cost support in higher education when they are ordinarily resident.
‘It is disappointing that, despite making an offer to discuss the differential taxation of military personnel, the Scottish government has not been consulted on the proposal announced by the MoD.’
Report by Pat Sweet
