Understanding Scottish Tax Codes

By Louise Mulgrew | 9th October 2015 | 14 min read

Do you have employees that live in Scotland? Here is some information you need to know about Scottish Tax Codes.

The Scottish rate of Income Tax was introduced in the Scotland Act 2012 to allow further powers to the Scottish Parliament. The new powers allow the Scottish government to affect the amount of income tax that is paid by Scottish taxpayers. The new rate of income tax will be adminstered by HMRC as part of the UK-wide income tax system and applied to non-savings income of those defined as Scottish Taxpayers.

This gives the Scottish government the power to set rates of income tax lower, higher or the same as the rates that apply in the rest of the UK. If they set a different rate, it will apply to all the main income tax rates.

The definition of a Scottish taxpayer is focussed on where an individual lives, not where they work. A Scottish taxpayer is someone who is resident in the UK for tax purposes and:

  • Has their main place of residence in Scotland for the greater part of the tax year, or (if they cannot identify a main place of residence)
  • Spends more days in Scotland than in the rest of the UK in the tax year, or
  • Is a Scottish Parliamentarian

HMRC will tell employers whom they should treat as a Scottish taxpayer by identifying them with a Scottish Tax Regime indicator i.e. tax code with a prefix letter ‘S’. Payroll will need to operate tax tables and perform a tax calculation appropriate to the SRIT set by the Scottish Government.

Under the current proposals, new starters will default to a UK tax code when no P45 is supplied. This is however, under review. The existing guidance states that there is no Scottish emergency tax code.

Initial proposal is only to change Rates from 2016/2017. Bands can be changed from 2017/2018. We will cater for both in 2016/2017 so that we do not have to revisit in 2017/2018.

There is no Scottish equivalent of tax code NT therefore SNT is not a valid tax code.

When extending the tax code field to a maximum of 8 characters, 8 characters is only permitted if the first letter is ‘S’. All places where the tax code is entered/validated must check e.g. 1234567L is not permitted.

Changes will be made within all of IRIS Software in the April 2016 releases.

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