RSM warns Scottish employers on income tax changes

After HMRC last week issued letters to Scottish taxpayers about the introduction of the new Scottish Rate of Income Tax (SRIT), RSM has warned that the campaign underplays the impact on employers.

The letter encourages Scottish taxpayers to ensure their address details are correct and seeks to reassure the vast majority, for whom residence is a simple matter, that there is no further action that they need to take. It also explains that from next April, Scottish taxpayers who are either employed or receive a pension, will have a new tax code beginning with the letter ‘S’.

However, RSM is warning that the introduction of the SRIT will have a significant but under-recognised impact on employers both inside and outside of Scotland.

Stephen Hay, head of tax at RSM in Scotland said: ‘Recent research suggests there is a very low level of awareness of the Scottish rate of income tax among those who will be paying it. While these letters will go some way towards addressing this issue, we are concerned about the wider implications for employers.

‘It is important to note that where in the UK an employer is based has no bearing on whether an employee pays the Scottish rate of income tax. It won’t be the employer’s responsibility to consider whether an employee is entitled to an S prefix in their tax code and their only official role will be to operate the Scottish Rate of Income Tax where it applies. However, there will nevertheless be important administrative burdens placed on employers. All employers with Scottish resident employees – or even a single worker living in Scotland – will still need to be set up to deal with the new regime and have payroll software which can cope with the new codes.

‘It is also likely that employers will have to respond to queries from their staff, and deal with the inevitable teething difficulties that the introduction of the new rate will bring – particularly in the event that the Scottish Government decides to raise or lower the rate.’