Scottish Rate of Income Tax

19 June 2015

Read about how the Scottish Rate of Income Tax (SRIT) will impact payroll procedures from April 2016.

We recently reported news that HMRC are seeking views on whether draft guidance provides clarity on the principles by which Scottish taxpayer status should be decided and also the good news that there will no longer be a requirement from April 2016 to include the Scottish Rate of Income Tax rate separately on the P60.

HMRC’s June edition of their Employer Bulletin provides the following detail:

Forms P45 and P46

Form P45 will allow the Scottish tax code format to be displayed. Scottish taxpayer status applies for a full tax year so, depending on when an individual moves, their taxpayer status may not change until the end of the tax year in question. Our systems will determine taxpayer status based on the number of days an individual resides in Scotland and will inform you if there is a change in the tax code.

As with current processing, if an individual changes employment during the tax year, you should continue to operate the tax code shown on the form P45. If you do not have form P45, or are unsure which tax code to use, you should use the rest of the UK (rUK) tax code and rate unless you receive a notification from us stating otherwise.

There are no changes to the Declaration Checklist (previously form P46) for SRIT. As we will determine taxpayer status, there are no plans to amend or add a question to the Declaration Checklist specifically for Scottish taxpayers. The rUK tax code and rates will need to be applied until we issue an S code.

However, form P6 will be amended to show the correct tax code, based on the taxpayer status we hold for that individual.

Changes to RTI

There will be no change as a result of SRIT on RTI for employers, other than reporting a new Scottish specific tax code for individual employees.

Calculations

The current process for week 1/month 1 will continue and will not be impacted by SRIT. We will advise you which tax code to apply, and this should be applied to the employees’ income for the year to date. Any resulting under or overpayments will usually be corrected in-year using current processes.

From 6 April 2015, the 50% overriding limit for PAYE deductions will apply to all tax codes. An employee’s tax deduction for each pay period cannot be more than 50% of their pre-tax pay or pension. The 50% regulations will be applied to both rUK and to Scottish rate tax calculations.

There will be Scottish tax tables for the Scottish tax codes so that the correct tax deduction is made in the same way as for existing tax codes/tax tables.

You will not be expected to split the tax between Scottish and rUK, but will be expected to apply the correct rates of income tax based on tax tables and tax codes.

In Year Changes

If the individual’s main place of residence is in Scotland for 183 days or more they will be classed as a Scottish taxpayer for the full tax year. If the customer changes their address in year, their taxpayer status will be reassessed according to the date they moved to that address. Our systems will reconcile an individual’s tax in accordance with current processes.

Pension Schemes

Pension schemes operating PAYE

If the SRIT is different to the Income Tax operated by the rest of the UK then as a PAYE operator they will already know if the employee is a Scottish taxpayer in order to collect the correct PAYE. HMRC would expect Registered Pension Scheme Administrators (RPSA) to tell their employees in advance that the amount they have to pay is changing due to the appropriate rate of Scottish rate in place at that time and will have adjusted their IT systems to collect the right amount.

Pension schemes operating relief at source

It should however be noted the government has agreed that from April 2016, Registered Pension Scheme Administrators/Pension Providers can continue to claim Relief at Source at the rUK basic rate for all members irrespective of any difference between the Scottish & rUK basic rates. We will identify Scottish taxpayers & make any adjustment (based on the rate set by the Scottish Government) to the relief given directly with the scheme member. Adjustments will then be made by HMRC through the Self-Assessment process or through PAYE coding.