Welsh Draft Budget published
03 October 2018
Finance Secretary Mark Drakeford has unveiled a Draft Budget for Wales, the first Budget to include revenues raised from Welsh rates of income tax as Wales gains the partial power to set and vary income tax for the first time.
The partial devolution of income tax from 6 April 2019 is the next step in Wales’ devolution journey and follows the successful introduction of the first Welsh taxes in almost 800 years – land transaction tax and landfill disposals tax – in April 2018.
Welsh rate of income tax
The responsibility for many aspects of income tax will remain with the UK government and, as with the Scottish rate of income tax (SRIT) the tax will continue to be collected by HMRC for Welsh taxpayers.
As we saw when SRIT was first delivered, the UK tax rates will reduce each of the three rates of income tax i.e. basic, higher and additional rates that are to be paid by Welsh taxpayers by 10p. The National Assembly for Wales will then decide what amounts to set in replacement of these reductions.
The combination of reduced UK rates plus the Welsh rates will determine the overall rate of income tax to be paid by Welsh taxpayers. For example, if each of the Welsh rates that are set and agreed by the National Assembly are 10p, this would result in the rates of income tax paid by Welsh taxpayers remaining the same as those paid by taxpayers in England and Northern Ireland.
Payroll software
Software developers are receiving updates and regular communications from HMRC’s Software Developer Support Team (SDST) to ensure that from April 2019 employers, payroll bureaux, bookkeepers and accountants will be able to operate their payroll processes, confident in the knowledge that their software is delivering solutions for the latest policy challenges.
PAYE codes
Employees affected by the change and liable to pay the Welsh rate of income tax will be identified by HMRC and the addition of a C (Cymru) prefix will be applied to their tax code. Income taxes regimes impacted by this change will include, PAYE (basic, higher and additional rates); income from pensions and other non-savings sources and self-assessment.
The Policy team have asked HMRC if they plan to contact provisional Welsh Taxpayers before the end of this year and when we receive an answer we will let you know.
Division of powers
Not all powers relating to the administration and collection of income tax have been devolved to Welsh government by the Wales Act 2014, excluded from these measures are:
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The ability to vary the tax-free allowance or to vary the threshold of the existing tax bands
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The ability to introduce further tax bands
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The ability for an individual to self-declare their residency status via a change to the starter checklist
Update address
The message for employees and clients remains constant: it is vital for them to keep HMRC informed when they have a change of home address. This is important for a number of reasons but not least to identify whether the taxpayer is a Welsh resident. Details can still be changed via the telephone helpline service. However, in line with MTD aspirations, HMRC continue to promote the use of the personal tax account as the preferred method to update details.
What next?
The outline draft Budget is the first stage of the Budget, which sets out where Wales’ funding comes from and how it is allocated to the main spending departments. The detailed departmental spending plans will be published on 23 October, in line with the new budget process introduced by the National Assembly last year. At this time, we hope there will be news of the actual rate of Welsh Income Tax, which although has been suggested to remain the same as rUK for at least the first year, only ratification of the Budget will confirm this.
The final Budget will be published on 18 December 2018, however, a date for the final budget debate is yet to be confirmed.
Employer guidance relating to the operation of payroll can be expected to be issued by January 2019 following the ratification of Welsh rates.