The Scottish Parliament approved the Scottish Rate Resolution on the 21st February 2017. What the resolution does is separate the UK into two distinct tax regimes for specific non-savings as well as non-dividend taxable income.
The two regimes are as follows;
1. The regime that applies to Scottish taxpayers (i.e. those with a tax code that is prefixed with the letter S).
The regime that applies to the rest of the United Kingdom (i.e. rUK taxpayers).
Finance secretary Derek Mackay’s first budget attracted a lot of fierce debate. However, the Scottish National Party (SNP) government was able to secure the resolution primarily due to the Scottish Greens refraining to vote.
The main result is that Scottish taxpayers will see a marked reduction of £500 to the 2016-2017 Basic rate limit. This is outlined in much more detail below;
Basic – £0 to £32,000
Higher – £32,001 to £150,000
Additional – Over £150,000
Scottish Basic – £0 to £31,500 (-£500 change)
Scottish Higher – £31,501 to £150,000 (+500 change)
Scottish Additional- (£0 change)
Above, we have outlined the only thing that has actually changed. However, it’s crucial to note that a different Basic rate limit for taxpayers that are Scottish when compared to rUK taxpayers and one UK-wide Personal Allowance also results in different earnings bands.
In 2017-2018, based on the assumption that the taxpayer is in receipt of the UK Personal Allowance of £11,500, the bands break down as follows;
Basic Rate Of 20%
rUK taxpayers – £0 to £45,000
Scottish taxpayers – £0 to £43,000
Higher Rate Of 40%
rUK taxpayers – £45,001 to £150,000
Scottish taxpayers – £43,001 to £150,000
Additional Rate Of 45%
rUK taxpayers over £150,000
Scottish taxpayers over £150,000
To provide an example, a Scottish tax payer with earnings of £44,000 will pay income tax at a rate of 40 percent on a part of the earnings while his/her rUK tax payer colleague will have a 20 percent marginal rate. However, according to Maree Todd, an SNP member of the Scottish Parliament (MSP), it is inaccurate to say that Scotland will be the highest taxed part of the UK.
She states that it would be foolish to “look at income tax in isolation”, and instead urges people to look at the combination of income tax and council tax as when doing so she argues that it shows that “those in Scotland pay less than those in the rest of the UK”. She further asserts that “taxpayers in Scotland get more for their money” and get a much better deal than “anywhere else in the UK.”
Finally, it is important to remember that the Scottish bands do not actually affect the bands on which the Basic Earnings Assessment (BEA) is performed for workers that are given employer supported childcare from April 2011. This assessment is in fact performed using the rUK bands and accurately determine the below tax and NIC exempt amounts;
Basic – Threshold is £0 to £45,000. Weekly is £55. Monthly is £243. Annually is £2,915.
Higher – Threshold is £45,001 to £150,000. Weekly is £28. Monthly is £124. Annually is £1,484.
Additional – Threshold is over £150,000. Weekly is £25. Monthly is £110. Annually is £1,325.