What you need to know about the Scottish Rate of Income Tax, even if you don’t live in Scotland

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SRIT is the Scottish Rate of Income Tax. Under powers created in the 2012 Scotland Act, Holyrood will receive a percentage of income tax paid on certain sources of income by Scottish taxpayers. 

This revenue will become part of the Scottish Government’s budget and the block grant to the Scottish Government from Westminster will be reduced accordingly.

The rate of UK income tax will be cut by 10p across the basic, higher and additional rates, leaving Holyrood to set its own rate to make up the difference exactly, raise extra revenue or reduce the tax bill for Scottish taxpayers. 

SRIT is currently set at 10p meaning Scottish taxpayers will pay the same rate of income tax as people in the rest of the UK for the time being. This allows the Scottish Government some control over its own tax raising.

How will it work?

If the Scottish Government chooses to vary the Scottish Rate of Income Tax, it will have to make the same changes to each of the tax bands – currently 20p basic, 40p higher and 45p additional. If, for example, Holyrood wishes to increase the additional rate to 50p in total, this would also mean an increase to 25p and 45p for the other two bands.

HMRC will collect SRIT on behalf of the Scottish Government through the existing PAYE and self-assessment mechanisms.

Who will pay?

This tax is payable by all Scottish taxpayers. Those who live in Scotland during a tax year will be Scottish taxpayers. For those who move to or leave Scotland or have more than one home, HMRC will decide if they are Scottish taxpayers. Only those resident in the UK for tax purposes can be Scottish taxpayers.

HMRC will issue Scottish tax codes for employers and pension providers to use. HMRC will notify taxpayers of their new Scottish tax codes.

From April 2016 the tax code will begin with the letter ‘S’ to signify a Scottish taxpayer. Those filling in a Self-Assessment tax return must declare if they are a Scottish taxpayer on the return.

How will SRIT be collected?

There is no change to the way income tax is collected by HMRC, but funds collected under the new SRIT code will be paid to Holyrood by the Treasury.

A new tax code is needed for all Scottish taxpayers, even though the rate they pay will not change initially.

What will be taxed?

SRIT does not apply to income from savings or dividends. It applies to wages, pension and most other taxable income including self-employed income.

Personal Allowances stay the same.

Scottish Rate of Income Tax from 6 April 2016, if you have a standard personal allowance (which will be £11,000).

UK rate for England, Wales and Northern Ireland

Income band

UK rate paid in Scotland

Scottish rate

Total rate for Scottish taxpayers

Basic rate 20%

£11,001 - £43,000

10%

10%

20%

Higher rate 40%

£43,001 - £161,000

30%

10%

40%

Additional rate 45%

Over £161,000

35%

10%

45%

Will it affect those living and working elsewhere in the UK?

Living and working elsewhere in the UK means you won’t personally be affected by the SRIT. However, many CAs will have clients with employees in Scotland who are affected.

How does this affect the block grant?

The block grant – Scotland’s other main source of funds – will be reduced by the amount of revenue cut from Scottish taxpayers by the UK Government. Both Governments must agree how this initial reduction is made so neither side is disadvantaged. Future reduction needs to be agreed to ensure the fairest deal for all UK taxpayers.

What is likely to happen in the future?

The SRIT system is likely to be superseded for the following financial year, 2017/18, when the new Scotland Bill, now going through Westminster, will devolve almost complete control over income tax to Holyrood. Other parts of the UK, such as Wales, are watching the process closely as plans for financial devolution are underway.

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