PAYE100035 - 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 England and Northern Ireland rates and rate band still apply to savings and dividend income.
For the 2016 to 2017 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 to 2017 tax year.
Starting from the tax year 2017 to 2018 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 to 2018 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.
For the 2018 to 2019 tax year the Scottish Government introduced two new rate bands, starter rate band of 19% and an intermediate rate band of 21%. Both these rate bands follow the same rules as the basic rate band. Customers falling within these rate bands are entitled to the Marriage Allowance at the basic rate (20%).
For the 2024 to 2025 tax year the Scottish Government introduced one new rate band, advanced rate band of 45%.
How it will be calculated
Residency
Coding
Reconciliation
How will it be calculated
For tax year 2016 to 2017, 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 to 2018 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 to 2017 all the investment income (savings and dividends) go to the Westminster Government.
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 National Pay As You Earn service (NPS) that will confirm if 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: Currently 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 Scottish income tax will apply to their individual circumstances.
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 for the whole of the UK and is used for Scottish taxpayers.
Tax Code NT will remain the same for all of the United Kingdom, England, Wales, Northern Ireland and Scotland.
From 2018 to 2019 Scottish taxpayers with two or more employments will be given S0T at their first secondary if the primary income falls within the starter rate. SBR will be given if the primary income falls within the basic rate, SD0 if the primary falls within the intermediate rate, SD1 for the higher rate and SD2 for the additional rate.
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, 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 more than 183 days 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 more than 183 days 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.
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 - 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 the 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 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 last country that is part of the tie, which the individual resided in for that tax year
Example 4:
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 last country that the individual resided in for that tax year.
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.
Marriage Allowance
Scottish taxpayers are entitled to the Marriage Allowance if their total income falls within the intermediate rate band or below. 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 their highest rate of tax to ensure they get the full amount, £250 for 2019 to 2020.
- A starter rate customer will have 1316 (£1316 x 19% = £250.04).
- A basic rate customer will have 1250 (£1250 x 20% = £250.00).
- An intermediate rate customer will have 1191 (£1191 x 21% = £250.11).
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 and Northern Ireland), Welsh 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, Welsh 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 to 2017 and all the income tax liability to the Scottish Government for 2017 to 2018 onwards. The amounts will be displayed in the Tax Liability UK and Tax Liability STp fields.
From 2017 to 2018 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 UK 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 £250 for 2019 to 2020. Scottish tax is £1000 and UK (England and Northern Ireland) tax is £500. £166.67 (250/1500 x 1000) is deducted from the Scottish liability and £83.34 (250/1500 x 500) is deducted from the UK liability.
Further information is given from PAYE90000 onwards.