PAYE100040 - Individual records: PAYE records: Welsh income tax
The Wales Act 2014 gives the Welsh Government the powers to set Welsh rates of income tax, which is administered by HM Revenue & Customs (HMRC) for Welsh taxpayers. The Welsh rates of income tax are due on non-savings, non-dividend income from 6 April 2019. The England and Northern Ireland rates and rate band still apply to savings and dividend income.
For the 2019-20 tax year the Welsh Government are able to set the rates of income tax lower or higher than the England and Northern Ireland rates (Scotland has its own Scottish income tax rates and bands). They can set different rates to be applied to the basic, higher and additional rates. The Welsh Government has confirmed that they will set the rates for 2019-20 at the same level as the England and Northern Ireland rates.
How it will be calculated
Residency
Coding
Complex day counting rules
Marriage allowance
Reconciliation
How will it be calculated
From April 2019, the UK government will reduce each of the three rates of income tax – basic, higher and additional rates – paid by Welsh taxpayers by 10p. The Welsh Government will then decide the Welsh rates of income tax, which will be added to the reduced England and Northern Ireland rates. The combination of the reduced England and Northern Ireland rates and the new Welsh rates of income tax will determine the overall rate of income tax paid by Welsh taxpayers.
For the 2019-20 tax year, the Welsh Government has set each of the Welsh rates of income tax at 10p, this will mean the rates of income tax paid by Welsh taxpayers will continue to be the same as those paid by English and Northern Irish taxpayers.
The portion of revenue attributed to the Welsh rates of income tax that were added to the reduced England and Northern Ireland rates will go to the Welsh Government. The portion of revenue attributed to the reduced England and Northern Ireland rates is paid to the Westminster Government.
All the investment income (savings and dividends) will continue to go to the Westminster Government.
Residency
The Welsh rates of 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 Wales for more of the tax year than in any other component part of the UK.
Note: The component parts of the UK are Scotland, Wales and combined England and Northern Ireland.
Welsh taxpayer status applies for a whole tax year and it is not possible to be a Welsh 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 Welsh 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. The 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 Welsh rates through the National Pay as You Earn Service (NPS) that will confirm if an individual is a Welsh 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 Wales, they are a Welsh 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 Wales, they’re a Welsh taxpayer.
If it is not possible to identify a sole or main place of residence, Welsh taxpayer status is decided by day counting. If the individual has spent more days in Wales than any other component part of the UK, they will be a Welsh taxpayer.
For example, an individual with one place of residence and moves house into or out of Wales part way through a tax year, whether they are a Welsh 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, 125 days in Wales and then 120 days in Scotland, because the individual has spent more days in Wales in that tax year, they will be a Welsh taxpayer.
All Welsh Parliamentarians will be Welsh taxpayers regardless of where they live. An individual is a Welsh Parliamentarian for a tax year if, for the whole or any part of that tax year, they are:
- an MP for a constituency in Wales
- an MEP for Wales
- an Assembly Member
Service personnel are taxed on their main place of residence, the same as civilians. HMRC is working closely with the Ministry of Defence on guidance relating to all service personnel on how Welsh rates of income tax will apply to their individual circumstances.
Coding
Where it is confirmed that an individual is a Welsh resident the Welsh Taxpayer (WTp) Status signal will be set and the Welsh Main Place of Residence (WMPR) Start Date will be inserted on the Income Tax Residency Status screen held on NPS. The 6 April 2019 is the earliest WMPR Start Date that can apply.
NPS will include a ‘C’ prefix on all Welsh Tax Codes where an individual has the Welsh Taxpayer (WTp) Status set, e.g. C1100L, CK100, C0T, and CBR.
The UK emergency tax code process remains the same and is also used for Welsh taxpayers.
Tax Code NT will remain the same for all of the UK (Welsh, Scottish and United Kingdom (England and Northern Ireland) taxpayers.
From 2019-20 Welsh taxpayers with two or more employments will be given CBR if the primary income falls within the basic rate, CD0 if the primary falls within the higher rate and CD1 for the additional rate.
Further information is given at PAYE11025, PAYE11085 and PAYE11090
Where it is confirmed that an individual is no longer a Welsh resident because their main place of residence has moved out of Wales
- a WMPR end date will be inserted on the Income Tax Residency Status screen on NPS
- the Welsh Taxpayer (WTp) Status signal may be unset if they have lived in Wales for less than 183 days
- the CY+1 view for the status will not show Welsh.
Where an individual has spent more than 183 days as a Welsh resident for the income tax year, the Welsh Taxpayer (WTp) Status signal will remain for the whole tax year.
Where an individual who has spent more than 183 days in a different country within the United Kingdom (UK) than in Wales in the tax year, the Welsh Taxpayer (WTp) Status signal will not be set for the tax year.
Complex day counting rules
Step one - Defining the tax year.
Determine number of days in tax year, start with 365 or 366 (leap year)
Deduct any days outside of UK (class day of leaving or returning as part of UK)
Deduct any days after a reported date of death (class day of death as part of UK)
This will give you the number of days that the customer was a UK taxpayer.
Step two - Day counting
Count the number of days living in:
- England and Northern Ireland
- Wales
- Scotland
Step three – Comparison
Compare day counting to the length of the tax year
If there is only one main place of residence, then the taxpayer status is the region where the customer resides
If
- there is more than one main place of residence and
- the sum of the number of days in a region is the same as the sum of the number of days in another region
Then the taxpayer status is the last region with higher day count for the appropriate tax year.
Example 1:
If the customer is in one region longer than the other
- 165 days country A
- 100 days country B
- 100 days country C
Status - Country A: We define the status as the country that the individual resided in longest for that year.
Example 2:
Two countries equal days and only two countries involved (leap year)
- 183 days country A (first part of year)
- 183 days country B (second part of year)
Status - Country B: We define the status as the last country that the individual resided in for that tax year.
Example 3:
Two countries equal days and three countries involved
- 150 days country A (first part of year)
- 150 days country B (second part of year)
- 65 days country C (last part of year)
Status - Country B: We define the status as the last country that is part of the tie, which the individual resided in for that tax year
Example 4:
Three countries in equal days (leap year)
- 122 days country A (first part of year)
- 122 days country B (second part of year)
- 122 days country C (last part of year)
Status – Country C: We define the status as the last country that the individual resided in for that tax year
Example 5:
Three countries in equal days when customer was abroad for a period of the year
- 150 days country A (first part of year)
- 150 days country B (second part of year)
- 65 days abroad
Status - Country B: Period of the year is 300 days and we define the status as the last country that the individual resided in for that tax year.
Where an individual has spent 183 days or more as a Welsh resident for the income tax year, the Welsh Taxpayer (WTp) 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 Wales in the income tax year, the Welsh Taxpayer (WTp) Status signal will not be set for the tax year.
Further guidance on the Welsh taxpayer status can be found at Welsh taxpayer technical guidance on GOV.UK.
Marriage Allowance
Welsh taxpayers are entitled to the Marriage Allowance if their total income falls within the basic rate band. They are entitled to 10% of the Personal Allowance (rounded up to the nearest 10) multiplied by their basic rate. The amount in the code will differ depending on the Welsh basic rate of tax to ensure they get the full amount, £250 for 2019-20.
Reconciliation
End of year and In-Year reconciliations will use appropriate rates of income tax based on the individual’s residency status for the year being settled - UK (England & Northern Ireland), Welsh or Scottish.
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 ‘Welsh’ when the Welsh rates have been used and it will be blank if the England and Northern Ireland rates have been used.
The Total Tax Chargeable screen shows the rates that have been applied, England and Northern Ireland, or Welsh or Scottish rates. It will also show the amount of income tax that will go to the Westminster Government and the amount that will go to the Welsh Government. If the year has been reconciled at the England and Northern Ireland rates, the full amount will go to the Westminster Government. If the Welsh rates have been used then the liability is proportionally split between Westminster and Wales. The amounts will be displayed in the Tax Liability UK and Tax Liability WTp fields.
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 Wales and the tax due to Westminster.
For example, the marriage allowance due is £250 for 2019-20. Welsh tax is £1000 and England and Northern Ireland UK tax is £500. £166.67 (238/1500 x 1000) is deducted from the Welsh liability and £83.33 (238/1500 x 500) is deducted from the England and Northern Ireland UK liability.
Further information is given from PAYE90000 onwards.