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 UK1.
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 cent2.
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 year3.
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”.
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