Scottish Budget 2026-27: Payroll Implications of the Latest Income Tax Adjustments
On 13 January 2026, Scotland's Cabinet Secretary for Finance and Local Government, Shona Robison, delivered the Scottish Budget for 2026-27 to Parliament. Amid broader commitments to health, social care, and cost-of-living support, the announcement included targeted changes to income tax bands – the most significant payroll-relevant updates for employers operating in or with staff resident in Scotland.
The Scottish Government has prioritised relief for lower and middle-income earners by increasing the upper thresholds for the Starter, Basic, and Intermediate tax bands. These adjustments, which take effect from 6 April 2026, will reduce annual income tax bills by up to £40 for many workers – equivalent to around 75p per week. The changes represent a real-terms boost, with the Basic and Intermediate thresholds rising by 7.4% and the Starter band seeing a notable expansion.
Crucially, there are no changes to any income tax rates, nor to the thresholds for the Higher, Advanced, and Top bands. These remain frozen, continuing the policy of fiscal drag that progressively draws more earners into higher tax brackets as salaries increase. For higher earners (above £75,000), the differential with the rest of the UK persists, with the Advanced (45%) and Top (48%) rates unchanged.
For payroll professionals, the key actions are:
- Update PAYE systems and tax tables to reflect the new Scottish bands.
- Confirm employee tax residency status, as Scottish rates apply only to those identified as Scottish taxpayers by HMRC (prefix 'S' tax codes).
- Communicate potential take-home pay increases to affected employees.
- Note that National Insurance contributions are unaffected, remaining aligned with UK-wide rules.
The table below summarises the changes to Scottish income tax bands and rates for taxable income (after the Personal Allowance):
| Tax Band | 2025-26 Range (£) | Rate | 2026-27 Range (£) | Rate |
| Personal Allowance | Up to 12,570 | 0% | Up to 12,570 | 0% |
| Starter | 12,571 – 15,397 | 19% | 12,571 – 16,537 | 19% |
| Basic | 15,398 – 27,491 | 20% | 16,538 – 29,526 | 20% |
| Intermediate | 27,492 – 43,662 | 21% | 29,527 – 43,662 | 21% |
| Higher | 43,663 – 75,000 | 42% | 43,663 – 75,000 | 42% |
| Advanced | 75,001 – 125,140 | 45% | 75,001 – 125,140 | 45% |
| Top | Over 125,140 | 48% | Over 125,140 | 48% |
These figures are based on the official proposals and will apply unless amended during parliamentary scrutiny. The expansions to lower bands will benefit most full-time workers earning below £50,000, while those above the Higher threshold see no relief.
Overall, the budget maintains Scotland's progressive tax approach, widening the gap with rUK for higher earners while delivering modest gains lower down the income scale. Payroll teams should liaise with software providers now to ensure smooth implementation ahead of the new tax year.
