Everyone has a 'personal allowance'. This is set by the government and is the amount employees can earn each year before they pay any income tax. Anything they earn above their personal allowance will be taxed at their normal rate. The personal allowance for the 2018/19 tax year is £11,850.
The bands and rates for Scottish income taxpayers changed from 6 April 2018. The graphic below shows what the new bands and rates are and how they compare to the rest of the UK.
Scottish income tax is only payable by Scottish taxpayers. An employee will be classed as a ‘Scottish taxpayer’ by HM Revenue and Customs (HMRC) if their main place of residence is in Scotland.
The government introduced a new ‘starter’ band which means that Scottish
taxpayers will pay 19% tax on the first £2,000 of taxable income. They’ll still receive 20% tax relief on pension contributions, meaning they’ll benefit from an extra 1%. This does not apply to occupational schemes, which we look at in more detail later.
Scottish taxpayers will continue to receive 20% tax relief on pension contributions.
So for every 80 pence they put into a pension, the taxman will turn it into £1.
The government have also introduced a new ‘intermediate’ rate for Scottish taxpayers of 21%.
The introduction of this new tax rate means that many employees who have never had to claim additional tax relief from HMRC will need to do this for the first time.
They can claim additional tax relief by completing a self-assessment tax return or by contacting their local tax office.
Whilst 1% may feel like a small amount to your employees, over time, this could make a difference to their retirement savings if its invested into their pension plan. So it’s a good idea to make your employees aware of the benefits of claiming this back.
The higher rate tax band for Scottish taxpayers is now 41% and the additional
rate tax band is now 46%.
For Scottish income tax payers a higher rate of tax kicks in for those with salaries over £43,431 rather than at salaries over £46,351 as it does for the rest of the UK.
Employees who are already paying higher rate or additional rate tax should already be claiming their additional tax relief through their self-assessment tax return, or by contacting their local tax office.
If they’re not already doing this, it’s a good idea to make them aware, so they don’t miss out on the additional tax relief they’re entitled to.
Members of occupational pension schemes make contributions via a net pay arrangement. This means that contributions are deducted from employees’ salaries before they pay income tax - so employees get tax relief on their contributions straight away, meaning they don’t have to claim any tax relief from HMRC. However, they will only get 19% tax relief on their contributions that fall into the starter rate band, not 20%
We’ve created some sample wording for you to use with your employees to tell them about the changes and what this means for them.
Tax treatment depends on individual circumstances and could change in future.
Where can I find out more?
For more information on the Scottish rate of income tax please see the Scottish Government website.