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A SRIT idea

Will Scottish taxpayers pay less?

From 5th April 2016 a new Scottish Rate of Income Tax (SRIT) will come into force in Scotland.  Although is it currently anticipated that taxpayers in Scotland and the rest of the UK will pay the same rate of tax next year, it is likely that the regions will diverge in coming years as more power is devolved to Scotland.

Who is Scottish?

The criteria applied to determine Scottish taxpayers are based on where the individual lives, and not where they work or their feeling of national identity.  All of the following would be classed as a Scottish taxpayer:

  • WILLIES (Working In London Living In Edinburgh)
  • Scottish Parliamentarians (regardless of where they live)
  • People living and working in Scotland
  • People living in Scotland and working across the border in Carlisle  / Newcastle etc

Who decides?

HMRC are responsible for assessing whether or not someone is a Scottish taxpayer.  Anyone that HMRC deems to be Scottish based on their principal residence will be issued with a new S tax code.  Your payroll software should automatically process the SRIT for anyone with a new S code.  As with student loans, it is not for the employer to use their own judgement about applying the SRIT.  If an employee disagrees with their tax code, it for the employee to resolve this with HMRC.  Employers must act on instructions from HMRC.

Do English employers need to do anything?

Even if your business operates exclusively in England (or any other region of the UK outside Scotland) you will need to comply with regulations as they apply to any of your employees who live in Scotland.  Surprisingly, there is no legal obligation to inform HMRC if you move and although employers really ought to know where their employees live, it might not always be obvious, especially if an employee has more than one residence.

Common misconceptions

It is common to think that any of the criteria below qualify for Scottish taxpayer status, but it isn’t the case.

  • National identity
  • Place of work
  • Where income is generated (eg property income in Scotland)
  • Regular travel to Scotland

Will Scots benefit?

The costs of the SRIT are to be borne by the Scottish Government.  HMRC currently estimates that the total costs of implementing SRIT will be in the range of £30 million to £35 million over the seven-year period from 2012-13 to 2018-19.  This is split between IT expenditure of between £10 million and £15 million, and non-IT expenditure of £20 million.  The additional annual costs of operating the SRIT will be between £2m and £6m.  The lower estimate corresponds to a SRIT where Scots pay the same rate as the rest of the UK.  If the SRIT diverges from the neutral rate of 10%, the costs rise in administering the tax regime in the UK including pensions, gift aid and disputes over residence.

Why is the SRIT being introduced?

Scotland as a whole is likely to be worse off as any difference in tax raised is offset by an adjustment to the block grant from Westminster.  It is estimated that 2.6m people will be issued with an S tax code.  The annual running costs are therefore less that £3 per taxpayer but it is a valid question to ask if it is a good use of taxpayer’s money if tax rates are the same across the UK.  It is anticipated that after additional powers are introduced in 2017 the SRIT could be more progressive, meaning that wealthier individuals would pay a higher proportion of tax.  For anyone thinking about their residence status and still had a choice, now is a good time to get advice on the best situation for you!

More information

For more information on the SRIT and for guidance on operating your payroll scheme, please contact Alterledger.

Related articles

Should you start your own business?

Economy in recovery

It now looks like the UK economy is in recovery.  Even if this isn’t the case, when people think that times will get better they start to spend money again.  With interest rates at historic low rates there is little incentive to stockpile cash in the bank for consumers and for entrepreneurs debt is relatively cheap to finance a new venture.

No Change for Currency

No Change for Currency (Photo credit: Wikipedia)

What’s your plan?

If you are starting a new business, it is important to work out what you will be selling, but to survive the early days of a start-up you will need good projections of your cash flow.  As you grow you may need investment from banks or other third parties.  Without good quality management accounts is it more difficult to persuade a potential investor to part with their cash.

Ask for help!

You can’t do everything on your own.  Work out what your core activities are and how much time you need to do them.  If you have time left over for ancillary activities then you are better completing these yourself too.  The cost of hiring specialist help, whether it be an accountant, web designer or lawyer can seem to be too much for a nascent company to bear.  However if you are spending so much time working out your accounts that you don’t have time for your customers you will cost yourself more in the long-term.

Business booming in Scotland

According to this article from the BBC  more Scots are starting up their own business.  Records from Companies House show that more than 340,000 companies were formed in Scotland last year.  Glasgow and Edinburgh are at the forefront of the economic recovery in Scotland.  If you have a good business idea, now could be the time to let that idea take form, especially if you have a service that supports other new businesses.

Give yourself a break

To give your business the best start, make sure you understand your finances.  Don’t forget that if you registered a company you are obliged to file accounts with Companies House as well as HMRC.  For more information on company formation see my blog here.

For support and advice on the finances of your business contact Alterledger or visit the website alterledger.com.

 

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