CIOT responds to the Scottish Budget

9 Dec 2021

The Chartered Institute of Taxation (CIOT) has commented on the tax announcements contained in today’s Scottish Budget (9 December). The CIOT noted that the Scottish Government’s decision to increase the starter and basic rate bands by inflation will mean that the point at which Scots start to pay more income tax than someone living elsewhere in the UK rises from £27,393 to £27,850.

Scots earning below this amount will pay up to £21.62 less income tax than if they lived elsewhere in the UK.

Workers earning above this amount will continue to pay more than taxpayers in other parts of the UK. However the impact of changes to the starter and basic rate bands mean that they will pay £4.57 less income tax compared to this year.

However, the UK Government’s decision to increase National Insurance by 1.25 percentage points from next April will mean that the effect of today’s announcements will be cancelled out. 

It means that workers earning more than the tax-free personal allowance of £12,570 will see their take home pay reduced compared with this year. 

Meanwhile, those with earnings between £43,663 and £50,270 will pay a marginal rate of tax (income tax and NI) of 54.25 per cent next year on that portion of their income. For the current tax year (2021/22), that figure is 53 per cent.

This is because the upper earnings limit for National Insurance is linked to the UK higher rate threshold for income tax, which is set higher than the Scottish threshold.

The CIOT has prepared a tax table comparing Scottish and UK income tax liabilities for 2022/23 and income tax and National Insurance liabilities which can be found at the foot of this email. 

Alexander Garden, chair of the CIOT’s Scottish Technical Committee, said:

“Increasing the starter and basic rate bands by inflation means that from April, the level of income that Scottish taxpayers start paying more income tax than those in the rest of the UK will increase by £457 to £27,850.

“Taxpayers with income below this level will save a maximum of £21.62 next year compared to those in the rest of the UK because of the 19p starter rate of tax.

“Above £27,850, the impact of both higher rates of Scottish tax and the planned National Insurance changes will see workers pay more.

“Scottish taxpayers will benefit by a maximum of £4.57 compared to their position this year because of the changes to the bands for Scottish income tax.

“However, this benefit will be offset by the extra National Insurance contributions that workers will pay as a result of the UK-wide increase planned for next April. Because of this, they will actually end up worse off compared to the current tax year.”