Payroll insight
tax rates and thresholds. For these examples, the thresholds have been converted into approximate monthly amounts. Example 1 confirms a low earner will be better off if they are a Scottish taxpayer, but Examples 2 and 3, based on an annual income of £28,000 and £48,000, show as predicted that high earners will be hit the most if they are Scottish taxpayers. NICs contributions (NICs). The UK government still sets the rates and thresholds for NICs as this is a reserved matter. For the 2018–19 tax year, higher earning STPs begin paying higher rate income tax at earnings of £43,430 but their NICs rate does not drop from 12% to 2% until their earnings reach £46,350. For those in the rUK, higher rate income tax kicks in at the same point that the NICs rate drops. PSAs Those employers that have agreed PAYE (pay as you earn) settlement agreements (PSAs) with HMRC must already ensure that their recordkeeping identifies STPs separately in the calculations. These calculations will be made more complicated by the changes in the Scottish bands from April 2018. Employer-supported childcare Employers must ensure that the earnings of STPs are assessed against the rUK higher rate threshold and not against the Scottish threshold when making the basic earnings assessment for employer-supported childcare (typically childcare vouchers). This annual assessment involves comparing anticipated annual earnings against the rUK tax bands to identify the maximum values of tax-free childcare support that an employee can have. Pension contributions Individual taxpayers are entitled to income tax relief on their contributions to registered pension schemes at their marginal rate, so now that tax rates can vary across the UK, the amount of tax relief available can vary too. UK government and HMRC are working closely with the Scottish government and pension providers to explain how providing tax relief will operate for Scottish pension savers. Another area of consideration for the employee is National Insurance
calculations (as I have in the examples), you need to keep your wits about you. Though the method is the same as for the rUK, there are additional steps due to the introduction of the new bands. n
Pension schemes that use the relief at source (RAS) method for providing tax relief do so by claiming the tax relief due on an individual’s pension contributions from HMRC and adding it to the individual’s pot. Relief is claimed at the basic rate and taxpayers with a higher marginal rate can claim any further tax relief from HMRC through self-assessment. ...HMRC started to release the residency status reports... If/when the Scottish and rUK tax basic tax rates diverge, RAS pension scheme administrators must claim a different amount of tax relief for scheme members who are STPs than they would for rUK taxpayers. Therefore, pension scheme administrators need to identify the tax residency status of all their scheme members. On 29 January 2018, HMRC started to release the residency status reports to scheme administrators who had sent an annual return of individual information by 30 September 2017 so that they can update their records. The report will have an extra field for residency tax status that will show ‘S’ for STP status, ‘U’ for an unmatched record and will be blank for rUK status. Pension scheme administrators who do not receive a residency status report must use the rUK rate for all members for the 2018–19 tax year, unless they use the residency tax status lookup service (currently under development). And then there’s Wales… There are many areas to consider and we could look upon this as good practice for April 2019, because this is when the Welsh Assembly’s powers come into effect. Although it does not have the power to vary the number of tax bands or the thresholds, it does have the power to vary the three tax rates independently. Closing observations Our gradually devolving United Kingdom will over time see four nations, with three very different tax systems, and no doubt more
Example 1 Scottish rate
Annual income £15,000 ÷ 12 = £1,250.00 per month less pay adjustment £988.25 = £261.75 taxable pay £167 × 19% = £31.73 £94 × 20% = £18.80 Total tax due is £50.53 × 12 = £606.36 per annum Rest of UK rate Annual income £15,000 ÷ 12 = £1,250.00 less pay adjustment £988.25 = £261.75 £261 × 20% = £52.20 × 12 = Example 2 Scottish rate Annual income £28,000 ÷ 12 = £2,333.33 less £988.25 = £1,345.08 £167 × 19% = £31.73 £846 × 20% = £169.20 £332 × 21% = £69.72 Total tax due £270.65 × 12 = £3,247.80 rUK rate Annual income 28,000 ÷ 12 = £2,333.33 less £988.25 = £1,345.08 £1,345 × 20% = £269 × 12 = £3,228.00 Annual income £48,000 ÷ 12 = £4,000 less £988.25 = £3,011.75 £167 × 19% = £31.73 £846 × 20% = £169.20 £1,619 × 21% = £339.99 £379 × 41% = £155.39 Total tax due £696.31 × 12 = £8,355.72 rUK rate Annual income £48,000 ÷ £12 = £4,000 less £988.25 = £3,011.75 £2,875 × 20% = £575 £136 × 40% = £54.40 Total tax due £629.40 × 12 = £7,552.80 Example 3 Scottish rate:
changes to come beyond 2019. If you have ever done manual
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| Professional in Payroll, Pensions and Reward |
Issue 39 | April 2018
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