On 30 November 2010, the former Coalition Government published the Scotland Bill, which made changes to the devolution settlement for Scotland and gives effect to the recommendations set out in the (Calman) Commission on Scottish Devolution’s final report, Serving Scotland Better: Scotland and the United Kingdom in the 21st Century published in June 2009. The Bill was enacted in May 2012 and is now referred to as The Scotland Act 2012.
The Act introduced the concept of Scottish Tax. This is not a new concept, as provisions relating to the ‘Scottish Variable Rate’ (SVR) of income tax were already set out in the Scotland Act 1998. This legislation gave the Scottish Government powers to adjust the Basic Rate of tax for Scottish taxpayers by plus or minus 3%. Since 2000, HMRC’s systems have been ready to handle such a change but the SVR was never introduced.
SVR provisions were repealed by the 2012 Act and replaced by the income tax structure, administered by HMRC that applies across the UK, with Basic, Higher and Additional rates of tax, but at rates set annually by the Scottish Parliament. The Scottish structure would replace the UK structure completely for Scottish taxpayers, but the rates will not apply to savings and investment income. The Act allows for this to be used from 2016/17 tax year.
The Scottish Government will be required to set a single rate each year, either a whole or half number, in advance of the start of the tax year. The Basic, Higher and Additional rates for Scotland will then be calculated by deducting 10 from each of the UK rates and adding on to each the Scottish single rate. For example, if a rate of 8½ is set, the Scottish rates would be 18½%, 38½% and 43½%. The arrangement would allow the Scottish rates to go as low as 10%, 30% and 35%. If no Scottish rate is set for a particular year, the rates for the UK will apply. There is no provision for the Scottish Parliament to vary the tax thresholds.
The legislation makes provision for the same contingencies as those included in the UK legislation. If the Scottish rate is not set until just before a new tax year, or the UK Government made a tax rate change just before a new tax year, the implementation of the new Scottish rates would be delayed into the new tax year, allowing time for HMRC systems and payroll systems to be modified to accommodate the change. Also, the UK’s annual Finance Act is not usually approved until some months into the tax year, there are powers to allow the changes to be implemented in advance.
However, we know that the Scottish Finance Minister did set a SRIT of 10% resulting in Scottish rates of income tax which are the same as for the rest of the UK.
Therefore, on 6 April we will see the introduction of the new Scottish Rate of Income Tax (SRIT) which will apply to Scottish taxpayers. This will affect anyone whose main place of residence is in Scotland and in December 2015 HMRC wrote to all people they though were Scottish tax payers.
We are now only 5 weeks away from the implementation of the SRIT and HMRC are already sending out P9 coding notices to be operated from 6 April 2016.
The letter HMRC sent advised recipients that they did not need to take action as long as the address on the letter was their correct.
Now, it may be that readers of this article will be saying that they have:
no Scottish taxpayers and yet they receive P9 coding notices indicating “S” code prefixes, or Scottish tax payers but have not received any coding notices with “S” code prefixes.An employer based in England or Wales could only have employees based in those countries, but a new employee has joined them who has just come south of the border but HMRC hold an address in Scotland.
We recommend that employers:
Check their coding notices thoroughly this year to ensure correct coding, and Consider advising employees to make sure HMRC hold the correct address for them.