PLEASE NOTE: The charity TaxAid advises only those people on low incomes whose problems cannot be resolved with HMRC.

Scottish Rate of Income Tax

Income Tax

From 6 April 2016, there is a new rate of income tax – the Scottish Rate of Income Tax. It applies to ‘Scottish Taxpayers’.

You may recently received a letter about the Scottish Rate of Income Tax? What does it mean? What should you do?

 A new way of dividing up income tax

SRIT is set by the Scottish Government and it replaces the first 10% of UK Income tax rates for Scottish Taxpayers. For 2016-17, SRIT is set at 10%, so you will notice no difference in your tax bills; the difference will be in how the money is used. This is likely to change from 2017-18.

The money raised from SRIT will be used in Scotland. SRIT is not a devolved tax: it will be collected by HMRC on behalf of the Scottish Government. There is more information about this on the Scottish Government’s website – http://www.gov.scot/incometax.

SRIT applies to earnings, pensions, rental income, but not to savings income (see https://www.gov.uk/government/news/the-scottish-rate-of-income-tax).

Why has HMRC sent me a letter?

HMRC is writing to everyone who it thinks is a ‘Scottish Taxpayer’, and so will be liable to pay SRIT. HMRC’s initial decision is based on your postal address.

The rules on who is a Scottish Taxpayer have three main tests:

  • If your only or main home is in Scotland, you are a Scottish Taxpayer. To determine this, compare the time you had a home in each part of the UK (Scotland, England, Northern Ireland or Wales) separately. Holiday homes do not count as ‘homes’
  • If you have no base in the UK which could really be regarded as a ‘home’, then you will be a Scottish Taxpayer if you spend at least as many days in Scotland as elsewhere in the UK. (You must also be UK resident for tax purposes)
  • MPs for Scottish constituencies and MSPs are automatically Scottish Taxpayers

If you have more than one UK address, for example if you’re a student, work offshore or if you have moved about the UK, it may not be clear if you are a Scottish Taxpayer.

To help you decide if you are a Scottish Taxpayer, see https://www.gov.uk/scottish-rate-income-tax.

What should I do next?

For most people it will be straightforward to decide if you are a Scottish Taxpayer. If you agree with HMRC’s letter telling you that you are a Scottish Taxpayer, you don’t need to do anything now, but you should check that all your PAYE sources of income have the letter ‘S’ in front of the code for the 2016-17 and following tax years.

If you are in Self-assessment, you will confirm your Scottish Taxpayer status by ticking a box on the tax return.

If you think you are not a Scottish Taxpayer, or if you have not been sent a letter and think you are Scottish Taxpayer, you should read the guidance on the links above and then contact HMRC.

Remember to keep HMRC informed of any changes of address, especially where you move into or out of Scotland (you can do this on-line at https://online.hmrc.gov.uk/shortforms/form/PAYENICoC).