The Scottish Parliament has proposed that the threshold for 40% tax will be held at £43,000 for 2017-18. In the rest of the UK, this 40% threshold will increase to £45,000 as shown in the table below.
|2017-18||Scotland||Rest of UK|
|Personal allowance tax free||11,500||11,500|
|20% tax on next||31,500||33,500|
|40% tax applies from||£43,000||£45,000|
|Class 1 NIC at 12%upto||£45,000||£45,000|
|Class 4 NIC at 9%upto||£45,000||£45,000|
The power to alter national insurance contributions has not been devolved to Scotland, so the Class 1 and Class 4 NIC thresholds won’t align with the 40% income tax threshold for Scottish taxpayers in 2017-18. This will create a 52% marginal rate (40% tax + 12% NIC) for Scottish taxpayers on employment income between £43,000 and £45,000.
The Scottish income tax bands do not apply for capital gains, savings income or dividend income. This means that Scottish taxpayers will have to perform two separate tax computations to work out their entitlement to the savings allowance, the correct dividend tax rate or the capital gains tax rate. In practice those calculations should be performed by tax software.
As an employer, you need to follow HMRC’s instructions to apply tax codes. The PAYE codes for Scottish taxpayers should include a prefix ‘S’. Check that your tax software is using the correct tax bands for 2017-18 if your payroll includes Scottish taxpayers.