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The great divide: Scottish tax residency

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23rd Jun 2015
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Next April, we will for the first time have two tax regimes operating with the UK: Scotland and the rest of the UK which HMRC have given the acronym rUK, writes Kate Upcraft.

We only know a limited amount about how the Scottish Rate of Income Tax (SRIT) will operate within payroll software although it was a welcome relief last week that HMRC confirmed that P60s for 2016/17 will not have to show a split between rUK and Scottish Income Tax as had been announced previously.

 Of course employers cannot operate the SRIT until HMRC have assessed who is a Scottish taxpayer. Technical guidance that gives an insight how this will be determined is the subject of a short consultation that closes on 31st July 2015.

A Scottish taxpayer is defined within ss80D-80F of the Scotland Act 2012 that amends the Scotland Act 1998.  The first step in assessing taxpayer status is that the individual is UK resident for tax purposes, someone who is not UK tax resident can never be subject to the SRIT.

The complications around the next part of the definition is that it is around ‘sole or main place of residence’, where and who the person works for is irrelevant unless they are an MP, MSP or MEP for a Scottish constituency who will be Scottish taxpayers irrespective of where they live. If the person has only one place of residence, and this is within Scotland, they will automatically be treated as a Scottish taxpayer.

It is those that have no main residence, or more than one, that pose a challenge for HMRC, and it is their challenge for employers are not required to assess residency but will always treat new starters as rUK allocating tax codes as per the normal rules for selecting statements A, B or C.

So individuals with one or more homes need to agree with HMRC in which one they have lived for the greatest number of days in the tax year. This will equally apply to those who move in or out of Scotland during the tax year. Where Scottish tax residency is determined it applies for the whole tax year.

As place of residence is not defined, but is taken to mean somewhere that a person lives i.e. not a hotel, but it is perfectly possible to have two homes such as a weekday city flat and a weekend house, but both must be lived in by the individual not just owned by them and lived in by others. Homes can of course be rented as well as owner-occupied.

HMRC will use a number of facts to establish whether someone has a ‘close connection’ to a part of the UK as section 80C of the legislation requires: 

  • For those who are married or in a civil partnership, where does the family spend its time?

  • If there are children, where do they go to school?

  • Where are they registered to vote and have their doctor and dentist?

  • Which homes are furnished and where are most of their personal possessions?

  • What home is used as their correspondence address for HMRC, banks and utility companies?

  • Where is their car registered and insured?

  • Which is their main home for council tax purposes?

The consultation provides a number of illustrative examples that indicate how HMRC will view those who have more complex living and working arrangements, perhaps the most commonplace are students whose parental home is in one country and university in another.

Again each situation will turn on its own facts, some students will return to their parental home to work at weekends even during term time, others will remain in their university accommodation throughout the year working there in the holidays too. Where individuals have no main residence at all, HMRC will simply count the number of days spent in each country, with the ‘day’ being defined by where they are at midnight unless they are in transit through the UK at that point en-route to another country.

Employees with complex living and working patterns should already be considering the records or documentation (the consultation has a comprehensive list) they should have to support their assertion that they are or are not Scottish taxpayers and HR and payroll professionals will be fundamental to passing that message to employees.

After that it’s over to HMRC and individuals until we start to receive S prefix tax codes early next year. We should also make employees aware that since April whenever our software sends an employee’s address via RTI it is now used to update their HMRC correspondence address unless they contact HMRC to provide a different correspondence address – doing this online is the simplest option  but it is vital the ‘correspondence address’ box is filled.

I, for one, am glad not to be having to be judge and jury in the more complex cases, it will be challenging enough to get the payroll software ready in time let alone decide who will be subject to the SRIT.

Of course the SRIT may not be around for long in its current incarnation anyway as the recommendations of the Smith Commission that the Government has agreed to, go much further than the SRIT allowing for the Scottish Government to decide tax bands, individual tax rates and for the block grant to be totally abashed. It’s going to be an interesting year.

Kate Upcraft is a renowned conference speaker and writer.  

Replies (7)

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By Harrison88
23rd Jun 2015 15:04

Crazy

This whole thing is ridiculous. More unnecessary, complicated tax law required to keep the Scots happy. What is the point? It's not like they're going to turn round and declare a 5% cut in combined income tax.

Should have just kept income tax rates a national issue which is voted on by a national parliament.

/rant.

Thanks (3)
Replying to Paul Crowley:
paddle steamer
By DJKL
23rd Jun 2015 23:33

Its not keeping me happy

Harrison88 wrote:

This whole thing is ridiculous. More unnecessary, complicated tax law required to keep the Scots happy. What is the point? It's not like they're going to turn round and declare a 5% cut in combined income tax.

Should have just kept income tax rates a national issue which is voted on by a national parliament.

/rant.

Its not keeping me happy ; irrespective of rates it will just be one more complication. It will not initially be a major impact, I only know of one employee on one of the payrolls I operate who is not resident in Scotland, however I know my downstairs neighbour lives here in Edinburgh but works in York so not sure her employers will be that chuffed.

Selling up and retiring gets more and more appealing by the day, I never,,,, wanted,,,,, to be,,,,, an accountant,,,, I,,,, wanted ,,,to be,,, a ..........lumberjack.

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By ShirleyM
23rd Jun 2015 15:25

It's good for the economy (but I'm not sure whose)

More civil servants, more dept managers, more Ministers .....  all paying tax.

Just a thought, who pays for all these extra departments?

Harrison, just wait until rUK gets equal powers (if it ever does).

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By kdbr
24th Jun 2015 08:37

'required to keep the Scots happy'

Now that's not quite right.  The SA2012 stems from the Calman Commisson, and is nothing to do with the post-referendum Smith Commission.

Calman was the brainchild of the combined unionist parties in response to the 2007 minority government, the start of their denial period and quest to get back what they saw as their right.  Things have changed somewhat since then.

So next year we have ludicrous income tax powers that say if one band is changed then so must they all be.  Fiscal levers they aint.  And for every pound raised by those measures, so the block grant reduces by an equal amount.  In short, pointless.

But Smith, The Vow, and 2017 and beyond, well that's just the start of another discussion altogether.

 

Thanks (1)
paddle steamer
By DJKL
24th Jun 2015 10:39

Interesting that a few

Interesting that about two weeks ago The Scotsman's Thursday property supplement had a whole page of properties for sale in Berwick on Tweed / Northumbia. Obviously aimed at the Edinburgh cross border commuter.

 

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Replying to SXGuy:
jlsmith
By jlsmith
24th Jun 2015 12:04

Berwick

I suspect East Coast will be upping the number of scheduled services to B-o-T in the future.  Moving the family just south of the border will also keep the kids out of the clutches of new (and terrifying) named guardians of the State....

Thanks (0)
Replying to davidwinch:
paddle steamer
By DJKL
24th Jun 2015 20:38

I have got the perfect property in mind, catch is my other half

jlsmith wrote:

I suspect East Coast will be upping the number of scheduled services to B-o-T in the future.  Moving the family just south of the border will also keep the kids out of the clutches of new (and terrifying) named guardians of the State....

I have got the perfect property in mind, catch is my other half is not as fascinated by trains as myself.

First house I have ever seen with its own signal box and railway platform (shame no track), and a signal box is certainly a cut above hiding away in a garden shed or a garage.

http://www.rightmove.co.uk/property-for-sale/property-30775089.html

 

 

Thanks (1)