CIOT comment ahead of Wednesday’s Holyrood tax vote
Commenting ahead of this afternoon’s scheduled debate on the Scottish Rate Resolution – the process for setting Scottish Income Tax rates for the coming tax year – the Chartered Institute of Taxation has reiterated some of the practical implications for Scottish taxpayers in 2022/23.
The draft Scottish Budget published on 9 December set out plans to increase the Scottish starter and basic rate bands by inflation, and to freeze the thresholds for the Scottish higher and top rates of tax (which are also set 1p higher than the rest of the UK) at £43,662 and £150,000 respectively.
Scottish income tax payers will also be impacted by the forthcoming UK-wide increase in National Insurance contributions (NICs). NICs are due to increase by 1.25 percentage points from April as part of the UK Government’s proposals to reform health and social care.
The mismatch between income tax rates being devolved to the Scottish Parliament and National Insurance powers remaining reserved to the UK Parliament means that Scottish income tax payers will face a joint Scottish income tax and NIC marginal rate of 54.25% (if employed) or 51.25% (if self-employed) on the portion of their earned income that falls between the Scottish higher rate threshold of £43,662 and the UK higher rate threshold of £50,270.
Taxpayers who pay UK or Welsh income tax will not face this spike and will instead pay a marginal rate of 33.25 per cent (if employed) or 30.25 per cent (if self-employed).
John Cullinane CIOT Director of Public Policy, said:
“The Scottish Government’s income tax plans for 2022/23 mean that from 6 April, the point at which Scots start to pay more income tax than someone living elsewhere in the UK will increase by £457, from £27,393 to £27,850.
“Although they will still pay more than someone in the rest of the UK, they will actually end up paying up to £4.57 less income tax compared with the current tax year as a result of the decision to increase the starter and basic rate bands by inflation.
“Scottish income tax payers with earnings below £27,850 will continue to pay up to £21.62 less income tax than if they lived elsewhere in the UK, due to the 19p starter rate of tax.
On the impact of National Insurance changes, John Cullinane added:
“However, any benefit resulting from the Scottish Government’s income tax changes in the coming year will be offset by the UK-wide changes to National Insurance that will take effect at the same time.
“Once the cumulative effect of Scottish income tax and NICs changes are taken into account, Scottish taxpayers can expect to be worse off in the new tax year”.