Yesterday’s #ScotBudget deployed the new Scottish tax powers. However given the range of tax powers they have, it was the proverbial drop in the ocean. Mark Pryce, Tax Partner at Campbell Dallas noted, “Unsurprisingly, however, it was only one of the powers which was actually unleashed.”

Mark Pryce Campbell Dallas

Mark Pryce, Tax Partner

The Scottish Government chose to pin back the band at which Scottish taxpayers start to pay the higher rate of tax at 40% with only a small inflationary rise to £43,430; whereas the rest of the UK will be at £45,000 from 6 April 2017; rising to £50,000 by the end of the UK Parliament. This leaves Scottish higher rate taxpayers £314 worse off next year than their counterparts.

Further admin hassle for UK business

The planned change also places more emphasis on all UK employers to identify their Scottish resident employees. There is now a much bigger financial impact on the Scottish economy than before and going forward Scottish taxpayers will now have to get different PAYE treatment. It is estimated that the proposal will affect over 400,000 individual taxpayers.

This Scottish Government divergence on income taxes could herald the start of further changes and an extra burden for Scottish and UK businesses. Indeed there remains further scope for different bands and rates to be introduced in next year’s #ScotBudget; provided yesterday’s proposed changes get pushed through the Scottish Parliament in the Spring. However, laid on top of 400 more pages of UK Finance Act 2017 new tax legislation, this merely adds a further considerable administrative headache for employers to contend with.

Mark added, “Is it enough of an increase to start a “brain drain” of Scottish talent to other parts of the UK? Probably not, well not yet anyway.” However some higher rate Scottish taxpayers may be starting to feel slightly aggrieved and a little uneasy at their net take home pay being out of kilter with their English colleagues.