Head of Taxation (Scottish Taxes, Employment and ICAS Tax Community) ICAS
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Identifying Scottish and Welsh taxpayers

17th Apr 2019
Head of Taxation (Scottish Taxes, Employment and ICAS Tax Community) ICAS
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HMRC is responsible for deciding who is a Scottish or Welsh taxpayer (and by default, who is a ‘rest of UK’ taxpayer). How certain can the Scottish Government and the Welsh Assembly be that the partially devolved income tax revenues raised from non-savings, non-dividend income will indeed reach Scotland or Wales? Justine Riccomini of ICAS discusses some concerns from the tax community.


Income tax is not fully devolved to Scotland and Wales, but partially devolved. Scottish and Welsh taxpayers’ income is now ‘cleft in twain’, the two parts being non-savings/non-dividend income (NSND ie income from employment, pensions, profits from a trade, rental income, and taxable state benefits), which is charged at rates and within bands of income set by the Scottish government, or at rates set by the Welsh government, and gets paid in full to Scotland and in part to Wales by the UK government.

Savings and dividend income (ie investment income) is liable to rest of UK rates of income tax and the tax is retained by Westminster. All income tax – both on NSND and S&D – is fully administered and collected by HMRC.

The tax base (ie what counts as income for income tax purposes), as well as the UK personal allowance currently set at £12,500 per annum for 2019/20, are both reserved matters ie controlled by the UK government, not the devolved ones.

Who qualifies as a Scottish and Welsh taxpayer?

In broad terms, Scottish and Welsh taxpayers are categorised by where they live, by virtue of the definitions at s.80D Scotland Act 1998 as amended by the Scotland Act 2012 and in Wales, at s.116E Government of Wales Act 2006 as inserted by the Wales Act 2014

Who classifies Scottish and Welsh taxpayers?

The Scottish experience has shown that HMRC’s attempts to classify Scottish taxpayers has not been a walk in the park. The numbers were around half a million short in the first year of the project. Also, around 80,000 individuals are expected to move either north or south of the Scottish border each year – they need to be caught up with.

In spite of HMRC’s best efforts, there are still tranches of Scottish taxpayers who have not been classified, or wrongly classified, even though they are taxed under PAYE and their addresses are correct under the RTI system (some informal estimates put this at around 5%). Even some Scottish MSPs have reported they haven't received ‘S’ codes – which is rather worrying, as they are Scottish taxpayers by default.

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