Chartered Institute of Taxation - Scotland comment on UK Budget

Today’s UK Budget has confirmed the income tax differences between Scotland and the rest of the UK for the coming year.

The Chartered Institute of Taxation’s analysis of the UK and Scottish Government’s income tax plans for 2020/21 has determined that, from April 6, Scottish taxpayers earning more than £27,243 will pay more in income tax compared to those on a similar income elsewhere in the UK.¹

Taxpayers across the UK – including Scotland – will also benefit from a planned increase in the level at which National Insurance starts to be paid.

While this will increase from £8,632 to £9,500, the Institute pointed out that the misalignment between the higher rate threshold of Scottish income tax and upper earnings limit for National Insurance means that Scottish taxpayers with income between £43,430 and £50,000 will continue to pay a marginal tax rate of 53 per cent.²

The Institute added that the decision to maintain the tax-free personal allowance and threshold for paying the UK higher rate of income tax at existing levels meant that it was now unlikely that the income tax plans agreed by MSPs last week would need to be revised.

The CIOT had expressed concern that any fundamental changes to income tax at the UK level could have prompted the need to rethink Scotland’s tax plans before the start of the new tax year.³

Alexander Garden, chair of the Chartered Institute of Taxation’s Scottish Technical Committee, said:

“The chancellor’s income tax decisions don’t widen the income tax gap between Scotland and the rest of the UK any further, but they entrench the differences between the two regimes.

“It means that from April 6, Scottish taxpayers earning more than £27,243 will pay more in income tax compared to the rest of the UK, while Scottish income tax payers earning less than this will pay a lower amount of tax as a result of the Scottish Government’s income tax policy.

“Taxpayers across the UK will benefit from the chancellor’s planned reductions in National Insurance. But because income tax is only partially devolved – and National Insurance remains set at a UK level – the anomaly that sees some higher rate taxpayers pay a 53 per cent marginal rate of tax will continue.

“A standstill approach to income tax from the UK Government means that it is unlikely that there will be any need for MSPs to revisit the tax plans agreed last week. It provides a somewhat stable end to what has been a chaotic Budget process”.

Notes for editors

1. The CIOT has compared the Scottish Income Tax liabilities and UK income tax liabilities for the 2020/21 tax year and identified the following differences:

The 19p Scottish starter rate of tax applies to income between £12,501 and £14,585, with the 20p basic rate applying on income between £14,586 and £25,158. On earnings between £25,159, and £43,430, the 21p intermediate rate of Scottish Income Tax will apply in 2020/21. Between £43,431 and £150,000, Scottish taxpayers pay a 41p higher rate of tax and do so at a lower level of income compared with the rest of the UK (where the rate is 40p). They also pay a higher top rate of tax compared to the rest of the UK (46p v 45p) on income above £150,000.

Although Wales has the power to set a Welsh Rate of Income Tax, the Welsh Government has proposed that income tax rates and thresholds will remain on a par with England in 2020/21.

2. In contrast, Scottish taxpayers earning between £50,000 and £150,000 pay a marginal tax rate of 43 per cent, comprised of the 41 per cent higher rate of income tax and a 2 per cent National Insurance rate.

3. See 'Holyrood can't rule out further tax changes just yet' (Chartered Institute of Taxation, 4 March 2020).

4.  Email [email protected] for a photograph of Alexander Garden.