What is the difference between Murray Smith, our Sales and Marketing Director based in Leicester, and Alan Fergusson our Employee Benefits Director based in Aberdeen?
Well, they are both Scottish, and both work for Mattioli Woods, both travel the country, and they are both very good at what they do for our clients. However, from April 2016, Alan will be subject to Scottish income tax.
The Scottish rate of income tax was introduced in Scotland in 2012, and the Scottish Government has proposed that the Scottish rate will be 10% for the tax year 2016 to 2017. UK income tax rates will be reduced by 10% for people living in Scotland.
They will then pay the Scottish rate of 10% on top of their UK rate. For example, if someone was subject to basic rate tax of 20%, this will reduce to 10%, and they will then pay a Scottish rate of 10% on top of this, giving a total of 20%.
There will be no overall changes to the total amount of income tax rate that is paid, but some of the tax collected under the Scottish rate will fund the Scottish Government and the rest will fund the UK Government.
The Scottish rate of income tax does not apply to income from savings such as Building Society interest, or income from dividends. This rate will stay the same for all taxpayers across the UK.
H M Revenue & Customs will continue to collect the Scottish rate of income tax on behalf of the Scottish Government. National Insurance contributions will be unaffected by the introduction of the Scottish rate of income tax.
It is not where an individual was born, or where they work, it is where they live which decides whether or not they are a Scottish taxpayer. If you live in one place during a tax year and it is in Scotland, you will be a Scottish taxpayer.
If you live anywhere else, you will not be.
You can only be a Scottish taxpayer if you are resident in the UK for tax purposes. If the address H M Revenue & Customs holds for an individual is in Scotland, they will have already been sent a letter to check their address is correct.
It is the individual’s responsibility, not the employer’s, to notify H M Revenue & Customs if they change their address, and from April 2016 affected individuals’ tax codes will begin with the letter S to show they are a Scottish taxpayer.
Therefore, just as a member of a pension scheme has a responsibility to notify the pension scheme of a change of address, individuals need to be aware that they have a legal responsibility to tell H M Revenue & Customs if they change address in order to ensure they receive the correct tax code, and pay tax to the right country!
Karena Woodall is a consultant with Mattioli Woods