New tax rates and bands will apply to Scottish employees from 6 April 2024, following December 2023’s Scottish Budget.

For the 2024/25 tax year, there will be a new ‘advanced rate’ of 45% applied to earnings between £75,001 and £125,140. In addition, the top rate of tax is set to increase by 1% to 48%, and the starter and basic rate bands will both see small, inflationary increases.

Combined with the existing divergence between Scottish income tax rates and those in the rest of the UK, these changes mean it’s more important than ever to make sure employees are on the right tax code – in particular any employees who are, or become, Scottish taxpayers. Scottish PAYE codes start with an ‘S’, so a common Scottish tax code will be S1257L – indicating a Scottish taxpayer who is entitled to the full personal allowance of £12,570.

Who pays Scottish income tax?

Employees whose only or main home is in Scotland for a tax year are Scottish taxpayers, and should have an ‘S’ prefix in their tax code. 

Individuals with more than one home will need to consider which is their main home – there’s guidance for those with multiple homes on GOV.UK. 

Employers should look out for new tax codes in respect of employees who move to Scotland during a tax year. The onus is on the employee to inform HMRC when they move home, but HMRC will need to issue a Scottish tax code if the employee’s move means they live in Scotland for more of the tax year than in any other part of the UK. A tax code change may also be needed for employees moving away from Scotland. 

The Low Incomes Tax Reform Group publish some useful information on moving to or from Scotland, which may be of interest to employees in either situation. 

Why does it matter?

Scottish income tax rates and bands are different to those in the rest of the UK, and set to diverge further from 6 April. Scottish employees earning less than £28,867 will pay less tax than their counterparts in the rest of the UK from 6 April 2024, but the position reverses above that level of earnings. 

This means it’s important that Scottish employees are on a Scottish tax code to help ensure they pay the correct amount of tax each year. Mistakes in applying, or failing to apply, a Scottish tax code can cause tax under- or over-payments for your employees. At worst they could even lead to bad publicity, as seen in the recent example of Scotland’s police chief who was not on a Scottish tax code despite living in Scotland, which could reportedly have led to a £9,000 underpayment of tax. 

This article reflects the position at the date of publication (13 February 2024). If you are reading this at a later date you are advised to check that that position has not changed in the time since.    

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