If you earn less than £43,000, then there is nothing for you to worry about here, as your tax liability in Scotland will be unchanged.
Earn more than that, and there are some tweaks you need to be aware of.
As previously mentioned, the Higher Rate threshold now differs between Scotland and the Rest of the UK, and we have detailed this in the comparative computations shown below for someone earning above the Higher Rate threshold.
Tax liability for PAYE
|2017/18||Scotland||Rest of UK|
|First £32,000 @ 10%||3,200||n/a|
|Scottish rate = £32,000 @ 10%||3,200||n/a|
|UK Rate £33,500 @ 20%||n/a||6,700|
|Balance at 40%||6,600||6,000|
|Total tax due||13,000||12,700|
This additional liability of £300 is the difference in the Higher Rate threshold at 20% – (£45,000-43,500) * (40%-20%) = £1,500 * 20% = £300.
Tax liability for self-employed
One adjustment that has not been recognised fully is that NI limits remain unchanged and are set by the UK Government.
This means that the computation of Class 4 NI for the self employed – for example – will be the same regardless of where the taxpayer lives.
The tax computation is exactly the same.
Using the above example and following it through to compute Class 4 NI gives the same answer in both cases.
|Scotland||Rest of UK|
|Upper limit – 9%||45,000||45,000|
|Rate above upper limit||2%||2%|
|NI to Upper limit||3,315.24||3,315.24|
|NI above upper limit||300.00||300.00|
The above demonstrates that if you are a Scottish taxpayer and earn over £45,000 from self-employment you will be facing a marginal 49% tax rate on that slice of earned income between £43,500 and £45,000.
As employees have a Class 1 NI rate of 12%, there will be a marginal tax rate of 52% on that slice of earned income between £43,500 and £45,000.
Marginal rates of tax
This is where it gets strange and contrary to what you would expect.
|Between £8,164 and £11,500||12%||9%|
|Between £11,500 and £43,500||32%||29%|
|Between £43,500 and £45,000 in Scotland||52%||49%|
|Between £43,500 and £45,000 Rest of UK||32%||29%|
|Between £45,000 and £150,000||42%||42%|
The effect of the loss of personal allowance for income above £100,000 and the impact of any claw-back of Child Benefit are excluded for simplicity.
Tax liability on dividend income
It has been repeatedly stated that this is the effect on earned income, but in actuality it is all non-savings income that is subject to the above regime. This means that rental income is taxed according to the Scottish tax system is the taxpayer is resident in Scotland.
The impact on savings income is unchanged as this has to be taxed at the UK rates. This means that dividend and interest income will be subject to the dividend allowance of £2,000 and the savings allowance of £1,000 (reduced to £500 for Higher Rate taxpayers).
Now you need to contact us for more information.