Scottish Tax Calculation

[scotia]

My wife, resident in Scotland, has just received her Tax Code for 2018/2019. Her Income comprises of a State Pension, an Occupational Pension, an Annuity, and untaxed interest. Her Interest and State Pension are deducted from her Personal Allowance, and the residual allowance is applied to her occupational pension. There is no allowance applied to her Annuity. Her Total income remains within the Standard Band (no higher rate tax). Now in previous years there was a single standard rate - so the above worked in a reasonable fashion. However in Scotland we now have three standard rate bands - 19, 20 and 21 percent. How will the occupational pension and the annuity know which bands to use?
Does anyone know if HMRC have issued a tax calculator that can handle this crazy Scottish Scheme?

[mearnsfool]

The new code they will use here is SD0.

They will tax that income at 21% and sort the final details out in her 2018/2019 self assesment tax return.

[scotia]

They will tax that income at 21% and sort the final details out in her 2018/2019 self assesment tax return

I think you are probably correct - so if the correct tax is to be levied, there will be a need for large numbers of additional tax returns. I wonder if HMRC will notify all of those who may be potentially affected, most of whom will probably never have filed a tax return. And I wonder who pays for the additional HMRC costs - the Scottish Government?

[DrBunsenHoneydew]

Expect the extra 1% to become 2, 3, 4, 5... in due course

[mearnsfool]

the Scottish Government?

No, the running of HMRC is reserved to Westminster, therefore the extra cost is spread accross all UK tax payers.

[teuchter66]

Perhaps you're all being a bit hard on HMRC who I'm sure are doing their best (successfully in my opinion) to cope with the political point-scoring tinkering with the tax rates and bands by the SNP/Green administration at Holyrood.

I haven't had to file a self-assessment return for 5 years or so and although I find myself paying Higher Rate tax this year for the first time since A-Day in 2006, the various codes and allowances as set out in my Personal Tax Account are fairly easy to understand with all the necessary adjustments being made to my tax-free amount to produce a tax code for my main pension (Untaxed Income, State Pension, Bank Interest etc).
A smaller pension is fully taxed at SD0X.

I would recommend everyone to get themselves set up with a Personal Tax Account, it really is a revelation and an effective way to advise HMRC of changes to your annual income. Eg. I amended my Loc Gov pension income on Friday and got an email advising of a change to my tax code today.

Incidentally I got a bit of a shock at my code changing from S438M to S90L but that's another story!!

Just for fun?? I calculated that even if my indexed State and Loc Gov pensions added up to £16,000 in total I'd still be paying more in tax this year than I did last year.

[scotia]

And another complication in the Scottish Tax System - Charitable payments.
When it was a UK-wide tax system, if you paid higher rate tax (40% +), then you could obtain fractional tax relief on Charitable payments. And, as I understand it, the UK wide tax rates and boundaries still apply to Charitable payments in Scotland.
However I thought that this would only affect those paying higher rate tax (the 40% + band). Not so - you need to carry out a convoluted computation if your income even strays into the Scottish 21% band!
From an HMRC note on my 2018/2019 tax return computation:-
Your gift aid computations of £xxxx have increased your Scottish basic rate limit.
Your basic rate limit for income not subject to Scottish rates has also been increased.
This ensures you receive additional relief on your contributions at your highest marginal rate of tax.

In my case, having retired, I fall just below the (Scottish and UK) 40% + band, so my relief is due on the Scottish 21% band.
What a mess! What fraction of SNP MSPs could accurately calculate the tax should be paid under the system which they have introduced? I would guess at 0%. But if there are any SNP MSPs listening, and are open to a challenge, then I'll provide them with a number of test scenarios, and a calculator (but no online assistance from HMRC).

[GPhelan]

Hi, I am not a tax expert and I do not live in Scotland, but I note that the HMRC exclusions list has two entries relating to Scottish tax payers.
The exclusions list documents situations where Self Assessment Individuals cannot file their tax return online and must submit paper returns.
The current 2018/19 list (which is frequently updated) is here:
https://assets.publishing.service.gov.u ... v-v1.0.pdf
I am providing this link and below extracts, not to suggest they apply in your situation, but to show that the Scottish tax rates are causing problems for HMRC and their online filing system.

Item 96 says: "This only applies to Scottish customers that have made pension payments with relief at source or Gift Aid payments who receive Relief by extending the basic rate limit. Extending the basic rate limit should ensure the taxpayer only pays tax on this income at the basic rate rather than a rate above that. Therefore, the Scottish taxpayer should receive extra tax relief of 1% of the value or the gross contribution for an intermediate rate taxpayer, 21% for a higher rate taxpayer, and 26% for an additional rate taxpayer.
If the non-savings and savings/dividend basic rate limits are extended and the amount by which they are extended exceeds the pension and gift aid payments and this takes more income out of the rates above basic rate excess relief will be received"
The document goes on to say that the issue it is under consideration, so that online filing is still OK for now!

Item 106 says: "This applies to Scottish customers that have income in the additional rate before deducting reliefs and allowances.
The reliefs and allowances must be more than the non-savings income. Changes were made to ensure that where the Scottish AHR_band was greater than the rest of UK AHR_band it allocated reliefs and allowances to non-savings. This applied to Scottish customers in 2018-19 where non-savings
were taxable at 46% and savings at 45%. However, whilst the changes resulted in the allocation of reliefs and allowances against non-savings it still allocates an amount to savings.
An example is a Scottish customer with Employment (EMP1) £50,002, Savings (INC2) £150,000, and Loss (SSE33) £50,000. The SA tax calculator incorrectly sets relief £47,924 against non-savings that would be taxable at 46% and £2,078 to savings at 45%. The liability calculated is £52,496.50. By setting the £2,078 towards non-savings it reduces taxable income at 46% in preference to income at 45% and also frees up more savings starter rate. The liability is then £ 52101.28, a difference of £395.22. It is estimated that less than (to be confirmed) customers will be affected. The maximum a customer should be overpaid is (to be confirmed)"
The document goes on to say that impacted people should file on paper.