CIOT: New tax year, same anomalies

Alexander Garden

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 year.

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.”