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HMRC internal manual

PAYE Manual

Individual records: PAYE records: Scottish income tax

The Scotland Act 2012 gives the Scottish Government the powers to set Scottish income tax which, is administered by HM Revenue & Customs (HMRC) for Scottish taxpayers. The Scottish Income Tax is due on non-savings income from 6 April 2016. The UK rates and rate band still apply to savings and dividend income. For the 2016-/17 tax year the Scottish Government were able to set the rates of income tax lower or higher than the rates that apply to the rest of the United Kingdom (England, Wales and Northern Ireland). If they set a different rate it applied to all income tax rates, the basic rate, the higher rate and the additional rate will all go up or down by the same percentage, relative to the UK rate. The Scottish Government made no changes for 2016-17 tax year.

Starting from the tax year 2017-18 the Scottish Government can update the rates independently of each other, change the rate band widths and increase or decrease the number of rate bands up to 10 rate bands. These bands can be either the basic rate band plus up to nine rate bands above, or the basic rate band, one rate band below and up to eight rate bands above.

For the 2017-18 tax year the Scottish Government kept the percentage rates and the number of rate bands the same, but reduced the level at which the higher rate was paid.

How it will be calculated
Residency
Coding
Reconcilation

{#howwillitbecalculated}How will it be calculated

For tax year 2016-17, each rate band will be reduced by 10 percentage points, making the basic rate 10%, the higher rate 30% and the additional rate 35%. The Scottish Parliament set a single rate which was applied across all three rate bands reducing the rates giving the total rate for Scottish taxpayers.  If the Scottish rate is 12% the total rate for Scottish taxpayers at the basic rate becomes 22%, the total rate for Scottish taxpayers at the higher rate becomes 42% and the total rate for Scottish taxpayers at the additional rate becomes 47%.

The 10%, 30% and 35% is then paid to the Westminster Government and the Scottish addition (in this example 12%) across all rate bands goes to the Scottish Government.

For 2017-18 onwards the above calculation does not apply and all the non-savings tax for a Scottish taxpayer goes to the Scottish Government.

For all years from 2016-17 all the investment income (savings and dividends) go to the Westminster Government.

{#Residency}Residency

The Scottish income tax will apply where someone is resident in the United Kingdom (UK) for tax purposes and has their sole or main place of residence in Scotland for more of the tax year than in any other part of the UK. The Scottish taxpayer status applies for a whole tax year and it is not possible to be a Scottish taxpayer for part of a tax year.

The location of an employer, trustee etc. is not relevant, it is the location of the individual’s main place of residence that is the key factor in deciding Scottish taxpayer status.

A ‘main place of residence’ is not necessarily the residence where the individual spends the majority of their time, although it commonly will be. A ‘main place of residence’ is the ‘place of residence’ with which the individual can be said to have the greatest degree of connection. This following may be useful in establishing whether a place constitutes a ‘main place of residence’, for example if the individual is married or in a civil partnership, where does the family spend its time, if the individual has children, where do they go to school, at which residence is the individual registered to vote, where is the individual registered with a doctor/dentist or which address is the main residence for council tax.

HMRC is responsible for identifying whether an individual is taxed using the Scottish rates through the Citizen Identification Database (CID). CID will confirm that an individual is a Scottish taxpayer based on the location of the individual’s sole or main place of residence.

If an individual has one place of residence and this is in Scotland, they are a Scottish taxpayer.

Where an individual has more than one place of residence in the UK, they need to determine which of these has been their main place of residence for the longest period in a tax year. In the majority of cases if this is in Scotland, they’re a Scottish taxpayer.

If it is not possible to identify a sole or main place of residence, Scottish taxpayer status is decided by day counting. If the individual has spent more days in Scotland than elsewhere in the UK they will be a Scottish taxpayer.

For example, an individual with one place of residence and moves house into or out of Scotland part way through a tax year, whether they are a Scottish taxpayer in that year will depend upon which house is their main place of residence for the longer amount of time, or

where an individual with more than one place of residence, has a house in England, Wales and Scotland. Where the individual spends 120 days in England, 120 days in Wales and then 125 days in Scotland, because the individual has spent more days in Scotland in that tax year, they will be a Scottish taxpayer.

All Scottish Parliamentarians will be Scottish taxpayers regardless of where they live. An individual is a Scottish Parliamentarian for a tax year if, for the whole or any part of that tax year, they are:

  • an MP for a constituency in Scotland
  • an MEP for Scotland
  • an MSP

NOTE: HMRC is working closely with the Ministry of Defense on guidance relating to all service personnel on how Scottish Income Tax will apply to their individual circumstances. This guidance will be published later in the year.

{#coding}Coding   

Where it is confirmed that an individual is a Scottish resident the Scottish Taxpayer (STp) Status signal will be set and the Scottish Main Place of Residence (SMPR) Start Date will be inserted on the Income Tax Residency Status screen held on NPS. The 6 April 2016 is the earliest SMPR Start Date that can apply.

NPS will include an ‘S’ prefix on all Scottish Tax Codes where an individual has the Scottish Taxpayer (STp) Status set, e.g. S1100L, SK100, S0T, SBR.

The UK emergency tax code process remains the same and is also used for Scottish taxpayers.

Tax Code NT will remain the same for both United Kingdom (England, Wales and Northern Ireland) and Scottish taxpayers.

Further information is given at PAYE11025, PAYE11085 and PAYE11090

Where it is confirmed that an individual is no longer a Scottish resident because their Main Place of Residence has moved out of Scotland, the Scottish Taxpayer (STp) Status signal will be unset and a Scottish Main Place of Residence (SMPR) End Date will be inserted on the Income Tax Residency Status screen on NPS.

Where an individual has spent 183 days or more as a Scottish resident for the income tax year, the Scottish Taxpayer (STp) Status signal will remain for the whole tax year.

Where an individual who has spent 183 days or more in a different country within the United Kingdom (UK) than in Scotland in the income tax year, the Scottish Taxpayer (STp) Status signal will not be set for the tax year.

Example 1:

Taxpayer A – lives and works in Glasgow, therefore classed as a ‘Scottish Taxpayer’ with an SMPR (Scottish Main Place of Residency) Start Date of 06/04/2016. On 01/07/2016 Taxpayer A moves and lives in England and does so for the remaining part of the tax year. Taxpayer A would pay Income Tax at the UK (England, Wales and Northern Ireland) rates because Taxpayer A has spent the majority of the year (279 days) in England. The Income Tax Status for 2016-17 would be ‘Blank’ and the SMPR Start and End Dates will show 06/04/2016 to 30/06/2016 on the Income Tax Residency Status screen.

Example 2:

Taxpayer B – lives and works in Edinburgh, therefore classed as a ‘Scottish Taxpayer’ with an SMPR (Scottish Main Place of Residency) Start Date of 06/04/2016. On 01/06/2016 Taxpayer B emigrates to Australia to live there forever after. Taxpayer B would pay Income Tax at the Scottish rates because Taxpayer B has spent 56 days in Scotland before leaving the United Kingdom on 01/06/2016. The Income Tax Status for 2016-17 would display ‘Scottish Taxpayer’ and the SMPR Start and End Dates will show 06/04/2016 to 31/05/2016 on the Income Tax Residency Status screen.

Example 3:

Taxpayer C – born and lives in Paris, France. On 02/01/2017 moves to Newcastle and then on 05/01/2017 decides to move to Aberdeen to live and work. Taxpayer C would pay Income Tax at the Scottish rates because Taxpayer C has spent 91 days in Scotland. The Income Tax Status for 2016/17 would display ‘Scottish Taxpayer’ and the SMPR Start Date will show 05/01/2017 on the Income Tax Residency Status screen.

Further guidance on the Scottish taxpayer status can be found at Scottish rate of income tax - technical guidance on Scottish taxpayer status on GOV.UK

{#reconciliation}Reconciliation   

End of year and In-Year reconciliations will use appropriate rates of income tax based on the individual’s residency status, either UK (England, Wales & Northern Ireland) or Scottish, for the year being reconciled.

If a year has been reconciled, either in-year or end of year, and the status changes, the year will be re-reconciled using the rate relevant to the new residency status.

The Reconciliation Summary screen now includes a column for the residency status used for the reconciliation. It shows ‘Scottish’ when the Scottish rates have been used and it will be blank if the UK rates have been used.

The Total Tax Chargeable screen shows the rates that have been applied, either UK or Scottish. It will also show the amount of Income tax that will go to the Westminster Government and the amount that will go to the Scottish Government. If the year has been reconciled at the UK rates, the full amount will go to the Westminster Government. If the Scottish rates have been used then the liability is proportionally split between Westminster and Scotland for 2016-17 and all the income tax liability to the Scottish Government for 2017-18 onwards. The amounts will be displayed in the Tax Liability rUK and Tax Liability STp fields.

From 2017-18 the Total Tax Chargeable screen will be split into two parts. The top section will show the tax chargeable at the Scottish rates (non-savings income) and the tax chargeable at the rUK rates (savings and dividend income).

Reliefs that are in terms of tax (for example, Marriage Allowance and Married Couples Allowance) will be shown in the top section but the tax relief will be apportioned between the tax due to Scotland and the tax due to Westminster.

For example, the marriage allowance due is £220. Scottish tax is £1000 and rUK tax is £500. £146.67 (220/1500 x 1000) is deducted from the Scottish liability and £73.33 (220/1500 x 500) is deducted from the rUK liability. 

Further information is given from PAYE90000 onwards.