Opinion Former Article

New tax year, same anomalies

The Chartered Institute of Taxation is advising Scottish taxpayers to be aware of the "practical realities" of income tax divergence as the new tax year begins tomorrow (6 April)

The Differences in income tax rates between Scotland and the rest of the UK will further highlight variances in the tax system that first arose in the 2018/19 tax year1.

These include:

  • Restricting eligibility for Marriage Allowance to those earning less than £43,430, compared with £50,000 across the rest of the UK. This is because of the lower threshold for higher rate tax in Scotland
  • Ensuring that taxpayers paying the intermediate rate of tax (21 per cent) contact HMRC to claim the additional one per cent of tax relief they are entitled to if they pay into a ‘relief at source’ pension scheme
  • The continuing – but widening – misalignment between higher rate Scottish Income Tax and the upper earnings limit for National Insurance. These will see employees earning between £43,430 and £50,000 exposed to a marginal tax rate of 53 per cent, compared with 42 per cent across the rest of the UK

Alexander Garden, chair of the CIOT’s Scottish Technical Committee, said:

“As we mark the start of the new tax year, it is important that the practical realities of income tax divergence are highlighted to taxpayers so they are aware of what the changes may mean for them.

“These changes aren’t new, but they are likely to increase in prominence as the tax systems on either side of the border continue on their divergent paths.

“Taxpayers receiving Marriage Allowance because their partner or spouse is earning less than the personal allowance will lose their eligibility if their income exceeds the Scottish higher rate threshold of £43,430. In contrast, they would continue to be eligible were they to live elsewhere in the UK, where the higher rate threshold will increase to £50,000.

“Another anomaly concerns those Scottish taxpayers paying the intermediate rate of tax and who pay in to a ‘relief at source’ pension scheme. They may be entitled to extra tax relief on their pension contributions. They can check this either by calling HMRC to ensure this is reflected in their tax code or when they come to complete their self-assessment tax return at the end of the year.

“The interaction between income tax and National Insurance has been well-documented, but the widening gap between the Scottish and UK higher rate thresholds is likely to push more taxpayers into this bracket in the year ahead”.

Notes for editors:

1.          Wales will have the power to set a Welsh Rate of Income Tax from April 2019 but it has chosen to retain rates and bands at the same level to England and Northern Ireland.

2.          The Chartered Institute of Taxation

             The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.

The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.
The CIOT’s 18,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.

Contact:  Chris Young, Scotland External Relations Manager, 07900 241 584; cyoung@ciot.org.uk

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