In my last blog for Scottish Financial News, I talked about the introduction of the Scottish Rate of Income Tax (SRIT). I looked at some of the key changes the new legislation will make and specifically what it means for employers. Let’s not forget however that SRIT applies to all non-savings income, so the self-employed and pensioners will also be affected.
In part II, I’ll be looking at the steps your organisation can take ahead of 6 April 2016 to make the transition as easy as possible. It might seem like a long time away, but, as the old cliché goes, the reality is it’s just round the corner.
Here are four things your company can do now to prepare for the SRIT’s introduction:
Have an initial conversation with your payroll/software provider – Talk to whoever manages your payroll or the company which provides your software. Make sure they’re aware of the changes and their systems are ready to handle the new rules. Remember, it’s the employers’ responsibility to make sure everything is in order ahead of April – if anything goes wrong it’ll be your company held accountable. If you manage everything in-house with your own bespoke software packages, you may even need to evaluate your processes and identify what changes need to be made to your payroll systems.
Take a general look at your employee population – Small companies will be familiar with their staff’s profile, but for many large organisations that’s a much more difficult task. If you have a substantial number of people who you think likely to be liable for SRIT, you should consider drafting information packs and other materials for these employees – they’re much more likely to come to you for advice rather than Her Majesty’s Revenue and Customs (HMRC). Some of this is already available from the Revenue, so have a look at their guidance. It’s better to have the answers before the questions start coming in. Of course, as I mentioned in my last blog, if any individual disagrees with HMRC’s position regarding their liability for SRIT they should take this up with HMRC directly.
Identify any complex situations – In 99% of cases, it should be relatively clear-cut who is and isn’t subject to the SRIT. But for firms which have complicated mobility issues and deployment structures, there could be a number of questions to answer. If, for example, you’re an oil and gas company operating in the North Sea but many of your employees reside in North East England, then there will be a number of cases to review. It’s important to get familiar with the different pockets of employees in your business and understand what the changes mean for them.
PAYE Settlement Agreements – While HMRC is responsible for determining to whom the new S code should be applied, employers will have to make one calculation on their own: PAYE Settlement Agreements. These relate to an annual payment made to HMRC for tax due on small or irregular taxable expenses – they could be things like employee of the month awards or similar benefits given to staff. The company will need to differentiate which awards were provided to those subject to the adjusted Scottish rates and which were provided to employees subject to the normal UK rates.
The wheels of change continue to move. Following the Smith Commission further legislation has been drafted which will give the Scottish Government more flexibility with the SRIT: allowing it to vary the thresholds for the existing tax bands and vary the changes made to each rate.
That doesn’t look likely to happen until 2017, but watch this space.
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