In 2017 Scottish tax has became fully devolved and the Scottish Government has now became fully responsible for setting and collecting its own Income Taxes. The current tax year 2017/18 is the first in which different tax rates will apply.
Although these taxes are actually collected by HMRC part of the existing tax system from April 2016, there are now significant differences in how the tax is raised and the rates that apply.
We can help you understand what these differences are and how they will affect you, and why you need not be scared by the changes that have occurred not by those which will come.
You are a Scottish taxpayer if you spend the majority of your nights in Scotland, or if you are an MP, MSP or MEP for a Scottish constituency. Working outside the 12-mile limit does not count.
As with every change, there are as many opportunities as there are threats, and by carefully planning your business activities you can help you mitigate or even avoid the worst of the impact.
If you are based in Scotland; in the rest of the UK; or outwith these islands then we can help you with advice and support.
Not all taxes are affected, and we will concentrate on Income Taxes which includes PAYE and NIC as these are directly impacted.
There are no differences in the Corporation Tax or VAT regimes between the two jurisdictions.
Although Scotland and the rest of the UK have separate and different legal systems, the same tax law is used in and all the same precedents will continue to apply.
How Scottish tax works
The legal position of the Scottish Government and Revenue Scotland is that it has the power to vary the Basic Rate of tax and the Higher Rates as well as the thresholds. There are no powers to alter the personal allowance.
The Scottish Rate applies only to earned income, that is to say, the taxation of dividends and interest remains with the UK Government.
All tax collection proceeds in exactly the same way as before with the exception that:
- All Scottish taxpayers are identified by HMRC and PAYE tax codes are preceded with an “S”
- Payroll software needs to be adapted to automatically undertake the correct computation and reporting
Of course, the actual computation is much more complex than the summary might suggest. This is where we can manage the entire process for you.
Current tax rates in Scotland
The following table shows the only differences as at 6 April 2017.
|Description||Scotland||Rest of UK|
|Fixed rate||10%||} 20%|
|Higher Rate threshold||43,000||45,000|
The effect of these changes is detailed with sample computations.