Corporate report

Welsh Rates of Income Tax Annual Report 2021

Published 10 December 2021

Applies to Wales

Purpose

The Government of Wales Act 2006 enables the Senedd Cymru to set a Welsh basic, higher and additional rate of Income Tax to apply to the non-savings and non-dividend income of Welsh taxpayers. This power was first used in respect of the 2019 to 2020 tax year, and the rates continue to remain the same as those for England and Northern Ireland (NI) for the 2020 to 2021 tax year.

Welsh Rates of Income Tax (WRIT) works by reducing the UK rate by 10p in £1. WRIT is charged on top of these reduced rates, and can be lower, higher or the same as the UK rates.

HM Revenue and Customs (HMRC) administers WRIT through existing Pay As You Earn (PAYE) and Self Assessment processes, including through existing approaches to Income Tax compliance and communications. This ensures the correct amount of tax is collected, and in the vast majority of cases Welsh taxpayers will notice no difference in how HMRC interacts with them.

To ensure consistent quality of service to Welsh taxpayers to allow both HMRC and the Welsh Government to meet their respective WRIT responsibilities, a Service Level Agreement (SLA) has been agreed. The SLA sets out requirements and performance measures for the operation of WRIT. One of the key requirements is for HMRC to report annually on its delivery of the agreed services.

This report sets out information about HMRC’s administration of WRIT, covering:

• compliance activity (including identification of Welsh taxpayers)
• the collection of and accounting for WRIT revenues
• customer service and support
• data for WRIT rate setting and forecasting
• data for Welsh Government cash management
• the costs of delivering WRIT and recharging of HMRC costs

Section 1: identification and assurance

The SLA requires HMRC to identify and maintain an accurate and robust record of the Welsh taxpayer population.

Welsh taxpayer identification

Ahead of the introduction of WRIT in 2019 to 2020, HMRC ensured a robust approach to the identification of Welsh taxpayers, and to providing assurance that this identification was correct. This included comparing its address data with that held by third parties, and sending direct communications to taxpayers to ask them to ensure their HMRC address record was correct and up-to-date.

The identification of Welsh taxpayers is an ongoing process. Since the introduction of WRIT, HMRC has continued to communicate with taxpayers and carried out checks for address assurance. Checks include making sure that households with street addresses which cross the border are recorded in the correct country, and completing missing information to enable addresses to be matched to the correct administration.

Welsh taxpayer identification is also supported by compliance activity. The exact nature of the compliance activity HMRC undertakes for any given year will depend on Income Tax decisions made by the UK Parliament and the Senedd. In broad terms, the greater the divergence between the 2 regimes, the greater the risk of a non-compliant behavioural response by customers that requires HMRC compliance activity to address. The assessment of the risk of non-compliant behaviour and compliance activity is summarised in Section 2.

Communications overview

HMRC uses the extensive existing channels of communications it has with taxpayers to reinforce key WRIT messages. Communications to customers have been through channels including online social media, and the Personal Tax Account, and have focused on the need for customers to update address details with HMRC when they move.

HMRC’s communications to employers have been through channels including the Employer Bulletin, Agent Update, Customer Compliance Managers’ engagement with large businesses and public bodies, forums for employers, payroll managers and agents, gov.uk, and online social media. These communications have focused on reminding employers of the importance of them correctly applying the ‘C’ codes issued to them by HMRC

Identification and assurance activity undertaken in 2020 to 2021

Comparison of HMRC address data with third party address data

As part of the preparations for the introduction of WRIT in 2019 to 2020, HMRC undertook a data clash exercise which looked to match HMRC address records with third party data, such as the electoral roll, data held by credit reference agencies, and employer records. This enabled HMRC to test whether its identification of Welsh taxpayers was corroborated by other address records. The results of this exercise provided evidence to suggest that HMRC’s identification of Welsh taxpayers was correct in 98 to 99% of cases.

HMRC will continue to assure the accuracy of its identification of the Welsh taxpayer population, and HMRC and the Welsh Government are currently in discussions about when is best to repeat this exercise.

Quality management checks on postcode data

Postcodes and the properties within them occasionally change to reflect new properties being built and subdivision of existing properties. HMRC receives quarterly postcode updates from the Office of National Statistics and reviews its processes for flagging Welsh residency to ensure ongoing postcode accuracy (see Annex for further details). During the 2020 to 2021 tax year, HMRC received and processed 1,660 records.

HMRC has also developed a scan to ensure it holds accurate postcode information. This operates in 2 parts:

• identification of taxpayer records with a Welsh postcode prefix but where the postcode is not recorded on HMRC’s list of live and deleted Welsh postcodes. During the 2020 to 2021 tax year, HMRC identified and corrected 4,707 records
• identification of taxpayer records with a blank postcode but which has a key word in the body of the address that indicates it is a Welsh postcode, eg Swansea. During the 2020 to 2021 tax year, HMRC identified and corrected 1,636 records

Records are subsequently updated to ensure that they have the correct postcode and residency status.

Ensuring accuracy of ‘C’ codes for Welsh parliamentarians

All Welsh parliamentarians are automatically Welsh taxpayers, regardless of their residence, by virtue of section 116E Government of Wales Act 2006, and are identified on HMRC systems accordingly.

HMRC introduced an assurance programme for Welsh parliamentarians following the introduction of WRIT in 2019 to 2020. Parliamentarians’ records are updated to show the correct residency status which remains in place until they leave their seat.

Section 2: compliance

The SLA requires HMRC to apply risk-based compliance activity to the collection of WRIT in the same way as is applied to the collection of Income Tax from taxpayers in the rest of the UK.

Compliance strategy overview

Compliance checks into tax affairs of Welsh taxpayers

HMRC assesses compliance risks and undertakes checks into the tax affairs of UK taxpayers, including Welsh taxpayers.

HMRC applies risk-based compliance activity to the collection of WRIT in the same way as is applied to the collection of Income Tax from taxpayers in the rest of the UK. This includes conducting enquiries into Welsh Self Assessment customers. The Welsh Government is not recharged for this activity.

Due to the interaction of PAYE, Self Assessment and tax legislation, HMRC is looking at risks over multiple years in order to take the most appropriate compliance action.

WRIT remains aligned with England and Northern Ireland rates so there is currently no differential that might drive a risk of behavioural change in Welsh taxpayers.

Address assurance

For all individuals, whether in Self Assessment or PAYE, HMRC monitors cross-border migration trends through comparison of customer base, analysis of returns and changes to tax accounts to identify possible evidence of customer behavioural response. HMRC also validates the accuracy of reported moves and the completeness of its address data. HMRC will continue communications activity to customers, reinforcing the need to update address details with HMRC when they move.

Building insight

There is currently no differential between WRIT and UK rates, so HMRC does not expect to see behaviour change related to WRIT. HMRC continues to undertake compliance activity into Welsh taxpayers for areas other than WRIT, and if that work shows any trends behaviour that could also be relevant to WRIT compliance that will be considered in future periods.

Wealthy individuals

HMRC continues to use the existing Customer Compliance Manager (CCM) model and other interactions with wealthy customers to raise awareness, educate customers about their WRIT obligations and assess compliance risk related to misrepresentation of Welsh taxpayer status or understatement of income liable to WRIT.

Employer compliance/assurance

HMRC acts to ensure that the Welsh ‘C code’ is being accurately and correctly applied in the PAYE regime, carrying out scans to test employer application of ‘C codes’ issued by HMRC. Any employer not applying the correct code is sent a reminder and HMRC monitors the response to identify employers who may require further intervention. The error rate fell slightly from 3.3% in December 2019, to 2.96% in December 2020.

Section 3: collecting and accounting for Welsh Rates of Income Tax revenues

The SLA requires HMRC to collect and account for Welsh Income Tax revenues at Welsh Income Tax rates.

Since the introduction of WRIT rates on 6 April 2019, HMRC has continued to administer and collect Income Tax from Welsh taxpayers as part of the UK tax system. It pays WRIT revenues into the UK Consolidated Fund in the same way as it does for all other tax receipts. These revenues are subsequently transferred to the Welsh Government and the Welsh Government’s resource block grant will be reduced accordingly, reflecting its revenue-raising powers.

HMRC will account for the amount of WRIT collected and report this in an Extract of HMRC’s Accounts to the Senedd each year, starting in 2021.

For 2019 to 2020, the estimated amount of Income Tax receipts attributable to the Welsh Government budget will be estimated and disclosed in HMRC’s 2019 to 2020 accounts. A final, updated figure for WRIT receipts will be provided in the 2020 to 2021 accounts and was released in a separate statistical publication in July 2021 .

WRIT outturn 2019 to 2020

For 2019 to 2020, the amount of Income Tax attributable to the Welsh Government budget is £2.041 billion. The table below shows the revenue from Income Tax on non-savings/non-dividend (NSND) income for WRIT taxpayers and comparable rest of UK (rUK, representing English and Northern Irish) taxpayers in 2019 to 2020 (ie 10p at the basic rate, 10p at the higher rate, and 10p at the additional rate.). The table also shows the components of the figures.

2019 to 2020 Welsh Rate of Income Tax and comparable rUK (NSND) Income Tax Revenue

	rUK NSND (£bn)	WRIT NSND (£bn)
Self Assessment established liability	28.310	0.620
PAYE established liability	31.649	1.461
Estimated further liability	1.751	0.045
Less: adjustment for uncollectable amounts	(0.613)	(0.021)
Reliefs Relief at Source (RAS)	(0.968)	(0.038)
Gift Aid	(0.610)	(0.027)
Final revenue for the tax year 2019-20	59.519	2.041

Notes

Self Assessment established liability includes an element of PAYE for Self Assessment customers. Reliefs are those not allocated to individual taxpayer accounts.

This time lag in confirming the actual amount of WRIT collected in 2019 to 2020 is due to the PAYE and Self Assessment processes. To administer PAYE for taxpayers, HMRC undertakes an end-of-year-reconciliation to assess whether individuals have paid the correct amount of tax in any given tax year. Self Assessment tax returns are, in some cases, not provided to HMRC until 10 months after the end of the tax year to which they relate.

Section 4: data for Welsh Income Tax rate setting and forecasting

The SLA requires HMRC to provide the Welsh Government with sufficient relevant and timely information and data for rate-setting and forecasting for WRIT.

HMRC provides the Welsh Government with relevant data for WRIT. At a UK level, these tasks are fulfilled using the Survey of Personal Incomes (SPI).

The SPI is compiled to provide a quantified evidence base from which to cost proposed changes to tax rates, personal allowances and other tax reliefs for Treasury Ministers. It is used to inform policy decisions within HMRC and the Treasury, as well as for tax modelling and forecasting purposes.

The SPI is based on information held by HMRC on individuals who could be liable to UK tax. It is carried out annually by HMRC and covers income assessable to tax for each tax year. Not all of the individuals are taxpayers because the operation of personal reliefs and allowances may remove them from liability. Where income exceeds the threshold for operation of Pay As You Earn (PAYE), the survey provides the most comprehensive and accurate official source of data on personal incomes.

HMRC provides the Welsh Government with an updated copy of the SPI data set annually. This year’s set, relating to the 2018 to 2019 tax year, was provided in April 2021 to the Welsh Government from which to undertake their policy costing duties. This copy was identical to that used, for similar purposes, at a UK level, with the exception of some minor aggregation of taxpayer data at the highest income levels to avoid potential breaches of taxpayer confidentiality. HMRC continues to work with the Welsh Government and the OBR to ensure the information provided meets their requirements and supports forecasting and rate setting for Wales.

This SPI data set will subsequently be published to enable researchers and academics to use it for statistical purposes.

Section 5: data for Welsh Government cash management

The SLA requires HMRC to provide Welsh Government with sufficient relevant and timely information and data to discharge its duties in respect of cash management due to any change between forecast and collected amounts of WRIT.

From 2019 to 2020, with the introduction of WRIT, there has been a reduction in the Welsh Government’s resource block grant. This is equivalent to 10 percentage points from each tax rate of non-savings non-dividend Income Tax generated from Welsh taxpayers in 2019 to 2020, uplifted using the mechanism set out in the fiscal framework agreed between the UK and Welsh Governments in December 2016.

Each year, both the tax receipts generated and the block grant deduction will initially be based on a forecast and then reconciled to actual receipts collected which will become known around 15 months after the end of the financial year in question. The first WRIT outturn was published in July 2021 .

A key requirement of the SLA is therefore for HMRC to provide the Welsh Government with sufficient data to discharge its duties in respect of cash management linked to any change between forecast and collected amounts of WRIT. To fulfil this requirement HMRC have agreed with the Welsh Government to provide WRIT figures from the Real Time Information (RTI) data received from employers. This is the best indication of trends in Income Tax liabilities available in real time but is not a complete picture of Income Tax liabilities because it excludes tax paid through Self Assessment (and some adjustments made to PAYE liabilities) after the end of the tax year.

This RTI data is now provided by HMRC to Welsh Government on a monthly basis.

Section 6: customer service and support

The SLA requires HMRC to apply the same level of customer service, support and transparency to Welsh taxpayers as is applied to income taxpayers in the rest of the UK.

HMRC administers WRIT as part of the UK Income Tax system. In the vast majority of circumstances Welsh taxpayers will therefore notice no difference in the way HMRC interacts with them. This approach also ensures that the correct amount of tax is collected.

WRIT is collected through existing PAYE and Self Assessment processes, which have been adapted to reflect WRIT rates. Welsh taxpayers are able to use HMRC’s usual guidance and customer contact channels for advice and information.

In the majority of areas customer service provided to Welsh taxpayers will therefore be included and reported within HMRC’s UK-wide customer service reporting.

The customer service and support for Welsh taxpayers, agents and employers that HMRC has incorporated into its existing processes includes the following:

• providing all Welsh taxpayers and their employers with Welsh tax codes prior to the start of the tax year
• updating online calculators prior to the start of the tax year with the WRIT rates set by the Senedd to ensure they remain accurate for Welsh taxpayers
• guidance for payroll software providers on how to correctly incorporate Welsh rates into their PAYE products for employers
• guidance on how Welsh taxpayer status is decided and what to do if you feel HMRC has wrongly identified your status
• encouraging customers to update their personal details, focusing on the use of Personal Tax Account
• issuing paper tax tables to digitally exempt employers prior to the start of the tax year reflecting Welsh rates

Some aspects of customer service are specific to WRIT, eg guidance on Welsh taxpayer status and ability to discuss with HMRC if you disagree with the Welsh residency status you’ve been given.

It is important that HMRC can demonstrate that its customer service in these areas matches what it provides across the UK as a whole. The SLA between HMRC and the Welsh Government therefore commits HMRC to collect and report on key, WRIT specific, customer contact metrics. The key metrics for 2020 to 2021 are outlined in Annex A to this report, the Annual Business Intelligence Report.

Welsh Language Service

HMRC has a well-established Welsh language service that is more than 30 years old and delivered under the 1993 Welsh Language Act. Approximately 32 full-time staff are employed for Welsh language work.

HMRC delivers the majority of its Welsh language services using 2 dedicated teams of Welsh speakers based in Porthmadog and Cardiff. They provide customer service support and translation services, as well as helping other areas of HMRC with Welsh language issues. There is also a designated Welsh speaking senior manager for Welsh language who is based in Cardiff and is the first point of contact for all things Welsh language in HMRC.

Welsh language customer support for WRIT is supported by both teams in various ways. HMRC also offers a Welsh language customer service option from the main Income Tax helpline. HMRC receives around 20,000 calls from Welsh language customers each year across all our customer services.

Section 7: recharging of HMRC costs

The SLA requires HMRC to provide the Welsh Government with sufficient relevant and timely information for assurance purposes and to budget effectively for any net additional administrative costs to be recharged to the Welsh Government.

Under the Fiscal Framework Agreement between the UK and Welsh Governments, the Welsh Government will reimburse HMRC for net additional costs wholly and necessarily incurred as a result of the implementation and administration of WRIT powers.

HMRC has made changes to its systems and processes to ensure the effective and efficient collection and management of WRIT. Associated with these changes are new and ongoing administrative costs to operate WRIT processes and systems.

HMRC and the Welsh Government have jointly agreed a framework that sets out the principles that HMRC will apply when identifying the WRIT administrative costs that will be recharged to the Welsh Government.

The framework document is kept up to date to reflect all known and anticipated administrative costs and should be read in conjunction with the Memorandum of Understanding and SLA (to which it is annexed) between HMRC and the Welsh Government.

HMRC sends monthly finance reports to the Welsh Government and invoices are authorised at the quarterly WRIT board.

Costs of administering WRIT

	2017-18 (£m)	2018-19 (£m)	2019-20 (£m)	2020-21 (£m)
Implementation costs	0.29	5.44	1.77	0.19
Operating costs	N/A	N/A	0.23	0.53
Total cost of Welsh rates of Income Tax invoiced in financial year[footnote 1]	0.34	5.80	1.60	0.72

Annex: annual business intelligence report 2020 to 2021

Customer contact - phone

HMRC introduced a Welsh Income Tax phone route within the HMRC Personal Taxes helpline. This gives customers generic pre-recorded Welsh Income Tax messages prior to speaking to a HMRC Customer Advisor. The charts below track calls to the Welsh Income Tax telephone line. Please note, these figures do not represent all calls made by Welsh taxpayers.

Month	Total Calls	Answered	Average Queue of Answered	Abandoned in Queue	Average Wait Before Abandoned	Overall WRIT Calls % handled
Apr-20	6	3	00:19:15	3	00:09:46	50%
May-20	6	2	00:30:56	4	00:23:26	33%
Jun-20	6	5	00:15:22	1	00:09:02	83%
Jul-20	12	11	00:11:35	1	00:12:19	91%
Aug-20	9	6	00:23:51	3	00:15:54	66%
Sep-20	11	11	00:08:55	0	00:00:00	100%
Oct-20	8	8	00:07:34	0	00:00:00	100%
Nov-20	10	4	00:16:50	6	00:08:23	60%
Dec-20	16	13	00:21:11	3	00:00:00	81%
Jan-21	15	6	00:35:58	9	00:12:23	40%
Feb-21	9	6	00:29:18	3	00:18:45	67%
Mar-21	12	8	00:23:21	4	00:15:02	67%

Complaints

HMRC track all Welsh Income Tax customer complaints to ensure they are processed within the HMRC customer service targets. These figures do not represent all customer complaints received from Welsh taxpayers.

Month	Complaints Received	> Tier 1 Complaint	Upheld	Partially Upheld	Not Upheld	Less than 15 days	More than 15 days	20/21 15 day target (80%)
Apr-20	0	0	0	0	0	0	0	-
May-20	0	0	0	0	0	0	0	-
Jun-20	0	0	0	0	0	0	0	-
Jul-20	0	0	0	0	0	0	0	-
Aug-20	0	0	0	0	0	0	0	-
Sep-20	0	0	0	0	0	0	0	-
Oct-20	0	0	0	0	0	0	0	-
Nov-20	0	0	0	0	0	0	0	-
Dec-20	0	0	0	0	0	0	0	-
Jan-21	0	0	0	0	0	0	0	-
Feb-21	0	0	0	0	0	0	0	-
Mar-21	0	0	0	0	0	0	0	-

Details of all customer contact are included in the HMRC Annual Report and Accounts 2020 to 2021.

Web hits

HMRC has a number of Welsh Income Tax related webpages that are hosted on GOV.UK. Hits to these pages are monitored.

Month	welsh-income-tax	treth-incwm-cymru (Welsh translation of page)	hmrc-internal-manuals/welsh-taxpayer-technical-guidance	tell-hmrc-change-of-details
Apr-20	5,221	31	52	137,097
May-20	4,147	18	23	132,396
Jun-20	3,180	16	10	116,678
Jul-20	3,180	24	46	112,211
Aug-20	2,804	21	12	107,018
Sep-20	2,837	17	37	109,312
Oct-20	3,544	27	10	117,571
Nov-20	3,204	17	11	130,252
Dec-20	2,546	20	10	108,887
Jan-21	3,709	19	39	147,275
Feb-21	4,692	13	20	142,721
Mar-21	4,273	23	13	169,290

1. Figures shown may not be an exact sum of implementation and operating costs due to invoicing schedules. ↩