express– Recently, the Scottish Government has increased the starter and basic rate bands by inflation in the country. As a result, this will mean the point at which people in Scotland start to pay more Income Tax than someone living elsewhere in the UK rises from £27,393 to £27,850. Overall, Scottish taxpayers will be paying £457 more in Income Tax than those living in England, according to the Chartered Institute of Taxation (CIOT).
Tax powers are devolved to the Scottish Parliament and are not handled by the UK Government via HM Revenue and Customs (HMRC).
However, any Scots earning below the threshold will pay around £21.62 less tax than if they lived elsewhere in the country.
All workers who earn above this specific threshold will continue to pay more than taxpayers in other regions in the UK.
Despite this, due to changes in the starter and basic rate bands, taxpayers in 2022 will pay £4.57 less in Income Tax compared to last year.
Due to the UK Government’s pending 1.25 percent hike on National Insurance payments, the effects of the devolved Government’s changes to Income Tax are likely to be cancelled out.
Employees who earn any more than the tax-free personal allowance will have their take home pay reduced compared with the amount they earned in 2021.
In comparison, those who earn between £43,663 and £50,270 will pay a marginal rate of tax of 54.25 percent in 2022 on that part of their income next year. For 2021, the marginal tax rate stands at 53 percent.
The upper earnings limit for National Insurance is linked with the UK higher rate of Income Tax, which is currently set to a higher level than the Scottish Government’s threshold.
Alexander Garden, the Chair of the CIOT’s Scottish Technical Committee, explained the tangible differences between the rates of tax paid in Scotland and England.
Mr Garden said: “Increasing the starter and basic rate bands by inflation means that from April, the level of income that Scottish taxpayers start paying more income tax than those in the rest of the UK will increase by £457 to £27,850.
“Taxpayers with income below this level will save a maximum of £21.62 next year compared to those in the rest of the UK because of the 19p starter rate of tax.
“Above £27,850, the impact of both higher rates of Scottish tax and the planned National Insurance changes will see workers pay more.
“Scottish taxpayers will benefit by a maximum of £4.57 compared to their position this year because of the changes to the bands for Scottish income tax.
“However, this benefit will be offset by the extra National Insurance contributions that workers will pay as a result of the UK-wide increase planned for next April.
“Because of this, they will actually end up worse off compared to the current tax year.”
The changes to Income Tax in Scotland were announced as part of the devolved Government’s Budget announcement by Kate Forbes, the Finance Secretary.
Ms Forbes said: “The Scottish Budget will provide taxpayers with stability and support, set out clearly how we will accelerate our Covid recovery, and crucially, how our spending plans will set Scotland on a new ambitious path.
“It has been a challenging Budget due to the continuing impact of the pandemic, and the uncertainty and worry that Covid poses for us all.
“This has been confounded by the UK Government’s decision to remove necessary Covid consequential funding at a time when we undeniably need to help our public services.”
Changes to taxes in the UK are set to take place on April 6, 2021.
