Johnston Carmichael tax expert outlines impact on business of new Scottish income tax

A top expert on Scottish taxation has set out what the country’s new income tax system will mean for business.

John Todd, head of the Scottish taxes team at Johnston Carmichael, commented after MSPs approved next year’s budget at Holyrood.

The 2018-19 spending plans are underpinned by a major overhaul of the tax system which includes new rates and bands that come into effect in April of this year.

Mr Todd said: “There are winners and losers with the new system, with 70 per cent of Scots paying less tax, and 30 per cent paying more.

“Given that the tax bands are different in Scotland to the rest of the UK, some are suggesting that it may be harder for businesses to attract high-earning employees to Scotland. But, others counter that with “tax savings” such as tuition fees being funded in Scotland, and lower council tax.

“Income taxes do influence behaviour but are only part of the equation. We are starting to see much needed discussion and debate on the role of taxation in Scottish society which I welcome.”

The tax expert recommended that Scottish-based companies educate their employees about the changes.

“Scottish employers, with internationally mobile employees, will need to make sure that staff are clear in understanding the different tax systems, with there now being significant differences between the Scottish and UK system,” he said.

“Employers who second staff from outside Scotland should consider their policies and procedures in this area.

“Often, employees will move locations with their job and their living circumstances may change. They will be responsible for ensuring they are paying the correct amount of tax based on their salary. However, employers should have systems in place to identify Scottish/non-Scottish taxpayers.”

Mr Todd also urged owner-managed Scottish businesses to consider their tax planning following the shake-up.

He said: “A large proportion of people who are self-employed or have family businesses are set up as limited companies and pay corporation tax. They then draw an income from their company as a salary which is subject to Scottish Income Tax or dividends which are subject to UK income tax rates.

“The changes announced this week make it all the more important to consider the best way to extract an income from your company.”

Johnston Carmichael is Scotland’s largest independent firm of Chartered Accountants and Business Advisers in Scotland with 700 staff and partners across 11 offices.