Scottish taxpayers confused over S code tax rates effective April 2016

Reporter, Accountancy Daily [2010-2021]

29 Feb 2016

With five weeks to go until the introduction of the Scottish Rate of Income Tax (SRIT) for Scottish resident taxpayers, there are indications of a bumpy start to the new regime with some individuals who believe they qualify as Scottish taxpayers reporting that HMRC has sent tax coding notices which do not include the new Scottish ‘S’ prefix

In December last year HMRC sent notification letters to around 2.6m people in Scotland to confirm the accuracy of HMRC’s records of taxpayers who live in Scotland and will pay the new rate.

In its letter, HMRC said its intention was ‘to reassure recipients that they don’t need to take any action if the address details HMRC holds for them are correct’.

From 6 April 2016 SRIT, set by the Scottish government, will replace ten pence of all the main rates of income tax for Scottish taxpayers, defined as those whose main home is in Scotland. Individuals who pay SRIT have a tax code which begins with ‘S’.

However, HMRC has started to issue tax codes for the 2016/17 tax year, and the Low Incomes Tax Reform Group (LITRG) says it has reports that some individuals, who believe they are Scottish taxpayers, have received coding notices showing tax codes that do not include the ‘S’ prefix. It appears that affected individuals may also not have received a Scottish taxpayer notification letter in December 2015.

The group says the issue appears to involve individuals whose only or main address is in Scotland, and whom HMRC already correspond with at that address in Scotland, suggesting a potential flaw in the system.

HMRC is responsible for tax collection from Scottish taxpayers on behalf of Revenue Scotland and the Scottish government.

In a statement, HMRC said: ‘It is important for us to issue the correct tax codes to ensure that the right amount of tax is deducted and know that the right government receive the funds.

‘If the notification letter or S coding have not been received we would encourage customers who think they have the wrong tax code to check the guidance on "Who is a Scottish taxpayer" and then get in touch to update their details if they believe that they have the wrong code.’

LITRG points out that not all Scottish taxpayers will receive a coding notice, since the S code is not a trigger for the issue of a form P2 coding notice – thus only Scottish taxpayers in receipt of a P2 coding notice for some other reason, such as the inclusion of a taxable benefit in kind or a new source of taxable income will receive a notice.

It is urging Scottish taxpayers to check payslips once the new tax year start on 6 April to see what tax codes their employer is using.

During his draft Budget speech in December, finance secretary John Swinney told the Scottish parliament he intended to set SRIT at 10p in the pound for the 2016/17 tax year, but indicated that once the Scottish government is given wider fiscal powers under the Scotland Bill there may be more flexibility in the way income tax rates are set.