From April 2019, Wales will start to exercise its authority to set its own income tax rates. The Welsh rate of income tax (WRIT) is not yet known, but payroll professionals need to be aware of the challenges ahead.
In April 2018, the Welsh Assembly became responsible for land transaction tax and landfill disposals tax which, for Wales, replaced stamp duty land tax and landfill tax.
April 2019 will see the National Assembly for Wales deliver a variation to their rates of income tax that will be payable by Welsh taxpayers. The responsibility for many aspects of income tax will remain with the UK government and, as with the Scottish rate of income tax (SRIT) the tax will continue to be collected by HMRC for Welsh taxpayers.
As we saw when SRIT was first delivered, the UK tax rates will reduce each of the three rates of income tax ie basic, higher and additional rates that are to be paid by Welsh taxpayers by 10p. The National Assembly for Wales will then decide what amounts to set in replacement of these reductions.
The combination of reduced UK rates plus the Welsh rates will determine the overall rate of income tax to be paid by Welsh taxpayers. For example, if each of the Welsh rates that are set and agreed by the National Assembly are 10p, this would result in the rates of income tax paid by Welsh taxpayers remaining the same as those paid by taxpayers in England and Northern Ireland.
Software developers have begun to receive updates and regular communications from HMRC’s software developer support team (SDST), who at this time of year are also working to deliver a programme of updates that will see the publication of technical specifications for 2019-20. Test services will also be updated and made available for the relevant schema.
All to ensure that from April 2019 employers, payroll bureaux, bookkeepers and accountants will be able to operate their payroll processes, confident in the knowledge that their software is delivering solutions for the latest policy challenges.
SDST will continue to issue updates and technical guidance to payroll software developers that will include information relating to the Welsh rate of income tax, and details of the proposed rates will be announced in the Welsh Government Budget later this year. As a part of the budget process for 2019-20, a call for evidence is running over the 2018 summer recess and the final Welsh budget date has been set as 18 December 2018. No date has yet been confirmed for when the budget will be debated and ratified.
New PAYE codes
Employees affected by the change and liable to pay the Welsh rate of income tax will be identified by the addition of a C (Cymru) prefix that will be applied to their tax code.
Income tax regimes impacted by this change will include: PAYE (basic, higher and additional rates); income from pensions and other non-savings sources; and self assessment.
Division of powers
Not all powers relating to the administration and collection of income tax have been devolved to Welsh government by the Wales Act 2014. Excluded from these measures are:
- the ability to vary the tax-free allowance or to vary the threshold of the existing tax bands;
- the ability to introduce further tax bands;
- the ability for an individual to self-declare their residency status via a change to the starter checklist.
Employer guidance relating to the operation of payroll can be expected to be issued by January 2019 following the ratification of Welsh rates.
The message for employees and clients remains constant: it is vital for them to keep HMRC informed when they have a change of home address. This is important for a number of reasons but not least to identify whether the taxpayer is a Welsh resident.
Details can still be changed via the telephone helpline service. However, in line with MTD aspirations, HMRC continues to promote the use of the personal tax account as the preferred method to update details.
About Samantha Mann
CIPP senior policy and research officer