Scottish Income Tax for 2022/23

ICB’s Payroll Policy Advisor, Ian Holloway of i-Realise, discusses the Scottish Income Tax for 2022/2023

On 09 December 2021, Kate Forbes, Cabinet Secretary for Finance delivered the Draft Budget 2022. This will be for the financial year 2022/23. The entire Budget is important for Scottish businesses and individuals. However, the important points from a payroll perspective are the Scottish Income Tax rates and thresholds for 2022/23.  

Income Tax

This is the first Budget of the current Scottish Parliamentary term that started in May 2021. Therefore, bookkeepers may want to refer to the Scottish National Party (SNP) 2021 Manifesto and their Programme for Government, both of which outline their approach to Income Tax policy which is, essentially:

• Stability for the next 5 years
• Income Tax rates will be frozen
• Yet thresholds may be increased ‘by a maximum of inflation’.

The ‘Tax Policy’ part of the Budget is clear that Income Tax powers have been shared with the Scottish Parliament to set the rates and bands for the Non-Savings and Non-Dividend (NSND) income of Scottish taxpayers. The section is clear that the setting or changing of Income Tax reliefs and exemptions and the tax-free Personal Allowance remain reserved to the UK Parliament.

So, importantly for payroll professionals, it is the tax rates and bands applying to Scottish Taxpayers on NSND income that have been shared between Scotland and the UK – this is not the same as Income Tax powers having been devolved.

The Rates

Kate Forbes confirmed the 5 rates of tax for Scottish Taxpayers remain unchanged.  Therefore:

• The Scottish Starter Rate remains at 19%
• The Scottish Basic Rate remains at 20%
• The Scottish Intermediate Rate remains at 21%
• The Scottish Higher rate remains at 41% and
• The Scottish Top Rate remains at 46%

This can be represented alternatively as follows: 

The Thresholds

In line with the stability and certainty commitment, the main announcements were that:

The Scottish Starter and Basic Rate thresholds for 2022/23 will increase by CPI inflation in September 2021 (3.1%)

The Scottish Higher and Top Rate thresholds are frozen at 2021/22 levels.

As a result of the above, the Intermediate threshold changes and the draft Budget proposes the following thresholds for each of the above rates of Income Tax:

The Scottish Draft Budget report looks at the above bands and includes the UK-wide Personal Allowance of £12,570 for 2022/23.  Although, the report has not correctly represented this given that the full £12,570 is free from tax so Income Tax only starts at the next full pound of income.

I believe that combining the thresholds with the rates and comparing them to the situation in 2021/22 gives a better representation as follows: 

Next Steps

The above will be set by Scottish Rate Resolution (SRR) ahead of the start of the tax year. The wording for this has already been published which does confirm that the Budget report is misleading (and the values above are correct).

In previous years, a minority SNP Government has had to make changes ahead of the presentation of a final Budget. However, this Budget has the support of the Scottish Green Party, therefore, the above values are certain to be reflected in the SRR. That gives certainty for software developers, employers and individuals.