The Press and Journal (Inverness, Highlands, and Islands)
Tax looks to be taxing for workers in Scotland
The 2018/19 Scottish budget was passed by Holyrood on February 21 – but what does it really mean for Scottish taxpayers?
Finance Secretary Derek MacKay was keen to confirm the many winners, including those people earning less than £26,000 who make up around 55% of the Scottish taxpaying population.
They will now, comparatively speaking, pay less tax than their English counterparts.
Losers include about 1.1million Scots who will now pay more tax than people in England on the same earnings.
Another impact of changes to taxation north of the border means employees in Scotland who earn between £43,430 and £46,350 are now paying 53% tax and National Insurance (NI), compared to 32% in the rest of the UK.
This 53% rate is actually some 6% higher than someone in England earning £1million a year who then receives just £1 extra in earnings.
In addition, people in Scotland earning more than £100,000 will lose 63.5% in tax and NI on every pound up to £123,700 as their personal allowance is tapered away to zero, compared with 62% in the rest of the UK.
Working the numbers is complicated – HM Revenue and Customs (HMRC) fully accepts its tax calculators haven’t been able to cope since changes to savings allowances in 2016. Taxpayers have faced unnecessary tax bills as a result.
This doesn’t give taxpayers confidence that tax offices will get it right for 2018/19, particularly those who are paying tax on income partly at English rates and some at Scottish rates. This inevitably involves them also having to take into account separate tax bands on different sources of income.
How will this affect the business community?
Firstly, these tax changes only apply to individual taxpayers, not corporate bodies, and only on non savings income. So income from employment, self-employment, partnerships, or rents from property investments will be included in these new rates, but UK “English” rates continue to apply to investment income.
This means shareholders of limited companies could pay themselves dividends, take advantage of the 2018/19 £2,000 dividend savings allowance, and continue to pay English rates of tax. The added bonus of paying dividends rather than salary is the NI savings, both for shareholders and the company.
Combining this with reducing corporation tax rates will inevitably result in some unincorporated businesses or investment property owners rethinking their current legal structure, and considering incorporation more than before.
The tax and NI savings are attractive, but the compliance and administration costs could be prohibitive.
Professional advice must be taken, especially where there are assets held in the business. HMRC famously coined the phrase “tax doesn’t have to be taxing” but, for Scottish residents, I would definitely beg to differ.