The definition of a Scottish taxpayer is focused on where an individual lives in the course of a UK tax year: they will either live in Scotland and thus be a Scottish taxpayer, or live elsewhere in the UK and not be a Scottish taxpayer. However, this question will not always be that simple to answer. In order for an individual to be a Scottish taxpayer, he or she must first be UK resident for tax purposes. Non UK residents cannot be a Scottish taxpayer. The remaining parts of the definition are based on the location of an individual’s sole or main place of residence. If they have one place of residence and this is in Scotland, they will be a Scottish taxpayer. Individuals who have more than one place of residence in the UK will need to determine which of these has been their main place of residence for the longest period in that UK tax year (by counting midnights spent in each residence). HMRC has already written to individuals to confirm their Scottish resident status.
The main UK income tax rates: (basic rate 20%; higher rate 40%; and additional rate 45%) will each be reduced by 10%. The Scottish Parliament then sets a single rate which will be added to each of these reduced rates to create the overall rates of income tax for Scottish taxpayers. For the 2016/17 tax year, the Scottish rate of income tax has been set at 10%, so as the reduction from the UK rate and the addition for the Scottish rate are the same, the income tax rates for Scottish taxpayers will be the same as for the rest of the UK.
In future, possibly from April 2017 onwards, it is expected that the Scottish Parliament will have wider powers to alter income tax bands and rates - although it will not be able to set the tax rates for dividends or savings or the level of the personal allowance. HMRC will tell employers whether or not to treat an individual employee as a Scottish taxpayer by issuing PAYE tax codes prefixed with an ‘S’ for Scottish taxpayers. Companies are going to have to have their payroll systems updated to identify those employees as Scottish taxpayers since all payrolls must operate the Scottish rates of income tax for Scottish taxpayers, regardless of where the employer is based.
