Blog: The Scottish rate of income tax

Isobel d'Inverno
Isobel d’Inverno

Isobel d’Inverno of Brodies LLP explores the potential ways the new Scottish Rate of Income Tax (SRIT) could be employed on its introduction next year.

The Scottish Parliament has been seeking views on what the rate of income tax should be.

I can imagine a few responses! Here are some of the relevant facts.

Later this year, or early next year, a tax rate will be set by Holyrood rather than Westminster.

From April 2016, this Scottish Rate of Income Tax (SRIT) will be paid by Scottish taxpayers - broadly those who live in Scotland or have a close connection with Scotland.

The tax rates for Scottish taxpayers on non-savings income will be reduced by 10% and the SRIT will be added.

If the SRIT is set at 9% the basic, higher and additional rates for Scottish taxpayers will all be reduced by 1% (to 19%, 39% and 44%), and if the SRIT is set at 11% Scottish taxpayers will pay 21%, 41% and 46%.

The SRIT will be operated by HMRC, not by Revenue Scotland, so it is not a fully devolved tax (though the revenue it raises will go to the Scottish Parliament).

In the main, it will be collected using special PAYE “S” codes.

Could the Scottish Government make income tax rates in Scotland more progressive by reducing the lower rates and increasing the higher rates?

No, or at least not yet - the SRIT is a bit of a blunt instrument because it applies equally across all the tax bands.

More flexibility will come when the Scottish Government gets complete control over income tax rates and bands under the proposals made by the Smith Commission and included in the new Scotland Act, but that will not happen until 2018.

In the meantime the SRIT can be zero, and there is no upper limit.

So where is it likely to be set?

I would be surprised if the Scottish Government sets a rate that is higher than 10%, given the UK Government’s undertaking not to raise income tax rates during the life of this parliament.

Could Scottish income tax rates be significantly reduced?

Probably not, because the block grant from Westminster will be reduced by an amount based on a 10% reduction, so if the SRIT is not somewhere near 10% there could be quite a hole in the Scottish budget.

It begins to look quite likely that the SRIT will actually be set at 10%, and so will not make any difference to Scottish taxpayers.

This is quite unfortunate because bringing in the SRIT will be not be cheap – HMRC estimates costs of between £30million and £35million, which have to be paid by the Scottish Government, and there are costs for employers too.

I do wonder why the SRIT is being brought in at all and would it not make sense to move straight to the Smith Commission proposals that would give the Scottish Government complete control over income tax rates.

If the general election had not been quite so close to the SRIT implementation date, perhaps that might have been possible.

In the meantime it is probably no bad thing to use the SRIT as a dry run of the Scottish taxpayer arrangements in advance of the more significant income tax changes in 2018.


  • Isobel d’Inverno is Director of Corporate Tax at Brodies LLP. You can view her profile here.
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