Why Do Scots Pay Different Tax Rates?

The difference in spending between Scotland and the rest of the United Kingdom is not a new phenomenon. It predates the tax refund and the Scottish Government's recent decisions to raise taxes. HMRC is responsible for collecting and administering all income taxes in the UK, including Scottish income tax. In short, while most taxpayers may pay slightly less tax than in the UK, the overall tax burden in Scotland is actually higher. For Scottish taxpayers, income tax is paid at the same rates as those that apply in the rest of the UK to their savings and dividend income.

Employers or pension providers use a taxpayer's tax code to calculate how much tax should be deducted from their salary or pension. Scottish taxpayers also receive a tax relief on their pension contributions at the Scottish rates and bands. Those who receive global amounts of social security pensions in Scotland are subject to income tax according to the types and bands of Scottish income tax. The Scottish Act 1998 established the Scottish Parliament, transferred powers related to local taxes such as municipal taxes and non-national rates, and provided for the variation of the basic income tax rate for Scottish taxpayers. If you are not a taxpayer or only pay income tax at the initial Scottish rate of 19%, you will also receive a 20% tax relief at source.

This means that DWP deducts income tax at 20% or 40% instead of the Scottish rate that you are liable for. You won't be able to see the division between income tax paid according to UK rates and income tax paid according to Scottish income tax rates on your payroll, Form P60 or Form P45. If you are a Scottish taxpayer and receive income or are entitled to income from a trust or deceased estate, you may be liable for income tax according to Scottish rates and bands on this income. As a result, Scots pay a 41% tax on profits above £43,662 and below £50,270, plus 13.25% NIC (a marginal rate of 54.25% for every pound earned), while taxpayers in England and Northern Ireland pay an income tax of 20% on these funds and a marginal rate of 33.25%.