A new tax rate for Scotland
Post by Mearns & Company in News
The Scottish Rate of Income Tax will bring more devolution to the Scottish Parliament and a new tax code to Scottish residents.
The Scottish Rate of Income Tax (SRIT) is being introduced from 6th April 2016, marking the beginning of increased fiscal devolution to Scotland. From April onwards, 10% of your current income tax percentage will go directly to the Scottish Government, rather than pass through Westminster to be included in the Scottish budget.
Once the new method of taxation is in place, the Parliament will be able to set the level of Scottish income tax it can claim before the start of every tax year. This power will result in Holyrood being able to raise or lower Scottish income tax in comparison to the rest of the UK, and ultimately raise or lower the annual Scottish budget. For the 2016/2017 tax year the rate has been set at 10% which, according to the Devolved Taxes Forecast is estimated to be worth £4,900 million. This amount will be taken from the annual Scottish budget from Westminster so that the overall budget amount stays the same but the source of the funds changes.
Unless the Scottish Parliament sets a rate other than the currently agreed 10 per cent, this will have no noticeable effect on Scottish taxpayers. The only difference will be that, from April, your tax code will begin with an ‘S’ to signify the split in where your income tax will go.
The tax brackets will be divided as follows:
Due to inflexibility in current rate-setting power, the Scottish rate must apply equally to all tax brackets. This may discourage the Scottish Government from setting the rate higher than 10% to avoid adversely effecting those with low taxable incomes until they have complete control of Scottish income tax and can alter all income tax bands independently.
HMRC will manage the new tax system and has been writing to Scottish residents over the last few months to confirm who will be paying the SRIT. If you have received one of these letters and there are any errors on the letter or you shouldn’t pay the Scottish rate, you can contact HMRC here. However if you are a Scottish resident, you don’t need to respond to the letter and your tax code will change after 6th April 2016. More information can be found here.
The Smith Commission Agreement
The Smith Commission Agreement came after ‘The Vow’ was made in the lead up to the referendum in 2014, proposing to grant more economic control to the Scottish Government. The report recommends giving complete control of income tax rates and bands for Scottish taxpayers to Holyrood, which would supersede the Scottish Rate of Income Tax. Until then we will continue as before, albeit with the new split in income tax and an ‘S’ tax code.