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Dec. 16 — A new Scottish rate of 10 percent set by the Scottish Parliament becomes effective for Scottish taxpayers April 6, 2016, but the effective overall rates of income tax for those in Scotland will remain the same as the rest of the U.K. at 20, 40 and 45 percent for the 2016-17 tax year, Scottish Finance Secretary John Swinney said Dec. 16 in a speech on the Scottish budget.
The Scottish rate of income tax (SRIT), as introduced by the Scotland Act 2012, is calculated by reducing the basic, higher and additional rate of U.K. income tax by 10 percentage points and adding the rate set by the Scottish Parliament. Scotland set its first income tax rate at 10 percent.
The SRIT will be collected via the Pay As You Earn (PAYE) system. The U.K. HM Revenue and Customs will collect the tax on behalf of the Scottish government and notify employers of the tax code applicable to their employees. The introduction of the Scottish rate of income tax will not affect National Insurance contributions.
The definition of a Scottish taxpayer will be resolved by determining the location of the individual's place of residence. In the case that an individual has no “close connection” to Scotland or more than one place of residence, the number of days spent in Scotland can be counted in order to determine an individual's status.
The Scottish Parliament can vary the rate moving forward by any whole number or half a whole number. Setting a rate greater than 10 percent would increase income tax rates in Scotland when compared with the rest of the U.K. If the rate is set lower than 10 percent in the future, Scottish taxpayers would be less income tax than taxpayers in the U.K.
“I hope that from 2017-18 this parliament will have more flexibility in setting income tax rates,” Swinney said.
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HMRC guidance is available at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/470009/Scottish_Taxpayer_Technical_Guidance_151020.pdf and https://www.gov.uk/government/news/the-scottish-rate-of-income-tax.
The Scotland Act can be found at http://www.legislation.gov.uk/ukpga/2012/11/enacted.
The 2016-17 draft budget can be found at http://www.gov.scot/Resource/0049/00491140.pdf.
More information on payroll issues in the U.K. can be found in the U.K. country primer.
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