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When Is A Scot Not A Scot?


HMRC Fails To Apply Correct Income Tax Rate

So last week, you might have seen coverage in the press about HMRC wrongly failing to apply the Scottish rate of income tax to more than 30,000 UK taxpayers?

What’s the issue?

Well failing to recognise that these 30,000 plus individual taxpayers were actually resident in Scotland during the last tax year means that HMRC did not apply the Scottish rate of income tax correctly… as a consequence, some taxpayers have paid too much tax, some too little, and the Scottish Government has lost revenue to support public funded projects north of the border. 

Both the Institute of Chartered Accountants of Scotland and the Institute of Chartered Accountants in England and Wales flagged the issue with HMRC. It impacts both those on PAYE and taxpayers completing an annual self-assessment return. In fact, some press reports claim that as many as one in five staff at one Council were wrongly designated as English in the last tax year.

The issue relates to residency, not nationality, place of birth or the main location that your job is officially based from. If you are resident in Scotland then you should pay the Scottish rate of income tax. But of course there is always the small print.

Your main home isn’t necessarily the one you own. If you work in Scotland four nights of the week, staying in a rented flat or hotel, then go back to your owned home in England or Wales at the weekend, then you’re still a Scottish resident, because in the year in question you have lived more in Scotland than at home.

What if you change job? Again, it depends on when in the year you moved. For the tax year beginning on 6 April 2018, if you worked in Berwick upon Tweed until Friday 31 August, then moved home to begin a new role in North Berwick, you will actually need to pay the Scottish rate of Income tax, as you’ll spend the majority of the tax year 18/19 (27 weeks) resident in Scotland.

So in fairness to HMRC, it’s not as simple as where your registered home address is, or where your job is ‘based’. That said, apparently they do need to address some software issues – apparently they don’t recognise Kelso as a Scottish postcode!

This is just one example of how tax regulations can be misunderstood or misapplied, leaving you out of pocket or facing a penalty. That’s because the Scottish Government chose to freeze the threshold at which people have to start paying the upper tax rate (40%) from 6 April 2017. This now means earnings above £43,000 qualify for the upper rate in Scotland, whereas in England and Wales that rate doesn’t kick in until you earn £45,000.

If you think you might be one of those affected by this issue around residency then check the address classification on your tax return and contact HMRC if you think there has been an error.

Of course, the simple solution is to seek help from a qualified accountant to prepare your tax return. They will ensure the regulations are applied correctly within your personal circumstances. You can contact us on 01577 865885. As the Prime Minister herself said last week: “Simples!”

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