Scottish parliament’s decision to change the amount at which the higher rate of tax applies will leave many facing two tax calculations and a higher rate of tax, James Hay’s Neil MacGillivray has warned.
From 6 April this year, the 40 per cent income tax rate will begin at £43,000 for Scottish taxpayers but the threshold in the UK will apply from £45,000 upwards.
Mr McGillivray, head of technical support at James Hay, warned that because Scotland does not have any control over National Insurance, Scottish taxpayers between £43,000 and £45,000 will be subject to a 52 per cent rate of tax.
Government in Scotland now has the power to set separate Scottish income tax rates and bands from the rest of the UK, and as such voted for an amendment to the higher rate threshold.
Matthew Harris, an independent financial adviser at Edinburgh-based Harris Independent Financial Advice, explained: “Between £43,000 and £45,000 employed taxpayers in Scotland will pay higher rate income tax (40 per cent) and the higher rate of National Insurance contributions (12 per cent), or 52 per cent in total.
"This occurs because while Scotland has taken control of income tax thresholds, it does not yet control National Insurance thresholds.
“The National Insurance rate for higher-rate taxpayers is usually 2 per cent, so higher rate taxpayers in the rest of the UK pay a combined 42 per cent, not 52 per cent, above £43,000 of income.”
Mr Harris suggested: “In our view this anomaly is an argument for either giving the Scottish government control of National Insurance thresholds or, more dramatically, combining National Insurance and income tax into one tax, which has a lot of appeal but provides a lot of complications.”
From April, Scottish taxpayers will be paying 20 per cent on income from £11,500 to £43,000, 40 per cent on income from £43,000 up to £150,000 and above £150,000 a 45 per cent rate will apply.
George Bull, senior tax partner at RSM UK, pointed out: “Scottish higher rate tax payers will pay up to £400 per annum more in tax than their counterparts elsewhere in the UK on the same earnings.
“It does appear that multiple calculations will be required to establish a Scottish taxpayer’s liability and a greater reliance will be placed on the ability of computer systems to get it right. Due to this added complexity, Scottish taxpayers may face an increase in tax miscalculations in the future,” he added.
eleanor.duncan@ft.com
