Scottish rate of income tax: are you a Scottish resident taxpayer?

Partner, Saffery Champness

29 Dec 2016

In the nine months since the introduction of the Scottish Rate of Income Tax (SRIT) there is still confusion about who is eligible to pay the tax, but the onus should be on the taxpayer as much as HMRC, says Jamie Younger, partner at Saffery Champness

A recent report published by the National Audit Office earlier concluded that HMRC still faces significant challenges to ensure that all Scottish taxpayers are correctly identified. However, the onus also lies with individual taxpayers to ensure that they keep HMRC appraised of any address changes and ensure that they have been assigned an appropriate S [Scottish] tax code.

Earlier there had been a discrepancy in HMRC’s notification of the new S codes with some 420,000 taxpayers omitted, but this issue has now been resolved although HMRC continues to work to refine its Scottish taxpayer database.

HMRC will face another tranche of issues over Scottish tax payer status when those who are self employed declare their details on their 2016/17 tax returns.

For employees who think they should be paying income tax levied under the Scottish rate (SRIT) then it is important to ensure that an appropriate coding has been assigned.

While HMRC has worked hard to make sure that all those who should be paying income tax in Scotland will be doing so, there are still bound to be discrepancies, particularly arising over those with self-employed status.

Higher rate tax thresholds changing

It is best to flag these up at the earliest opportunity – especially since the proposed differences to personal allowances and thresholds from April 2017 following the Scottish government’s budget announcement on 15 December.

Higher rate taxpayers in Scotland will be paying more than equivalent earners south of the border so it important to understand if you really are Scottish resident under the definition.

Also, there may still be those with English addresses on their tax returns who should be paying SRIT and those with a Scottish address whose main residence is in fact elsewhere in the UK.

Such anomalies still need to be ironed out and self assessment cases are of course subject to the normal HMRC enquiry process.

HMRC will continue to collect income tax on behalf of the Scottish government and has to report the actual amount of Scottish income tax collected to the Scottish government.

Tax avoidance

It also has responsibility for shutting down opportunities for possible tax avoidance because of the different regimes and to provide an IT solution that allows personal pension providers to claim relief at source from 2018.

Anyone who is unsure about whether they have been given the right tax code under the new rules or what their Scottish residence status is should consider seeking advice.