Scotland’s five income tax bands and tax relief for pensions

Following the announcement of new income tax rates for Scottish taxpayers for 2018/19, the government is looking at ways of addressing the issue of the tax relief due on Scottish taxpayers’ pension contributions.

Tax relief on pension contributions is a complex matter and depends on the marginal tax rate of the individual concerned and whether or not the contributions are being paid with relief at source or under net pay arrangements. The following link details how relief will be given for 2018/19. If you would like help in this complex area please contact us.

The income tax rates for Scottish taxpayers on income other than savings and dividend income are now expected to be as follows:

Scottish Bands £ Band name Scottish Rate
0 – 2,000 Starter 19%
2,001 – 12,150 Basic 20%
12,151 – 31,580 Intermediate 21%
31,581 – 150,000 Higher 41%
Over 150,000 Top 46%

Scottish taxpayers are entitled to the same personal allowance as individuals in the rest of the UK which for 2018/19 is £11,850. The allowance is reduced by £1 for every £2 of adjusted net income in excess of £100,000. The bands and allowances are detailed in the P9X.

Internet links: GOV.UK pensions newsletter P9X 2018

Pensions Auto Enrolment reaches a million employers

The Pensions Regulator has announced that the number of employers meeting their workplace pension duties has reached one million and that statistics show that approximately 9.3 million people are saving into a pension.

TPR’s Director of Automatic Enrolment, Darren Ryder, said:

‘I am delighted we have reached this important landmark, which shows how far we have come since the start of automatic enrolment.

By successfully meeting their responsibilities, employers have helped reverse the downward trend in workplace saving so that putting earnings into a pension has now become the norm.

The continued support of the pensions industry, including pension and payroll providers and business advisers has been crucial to the success of automatic enrolment. The industry has helped us ensure employers have the tools, information and services they need to comply with the law.

We are now focused on the challenges ahead so that employers continue to understand what they need to do so that staff receive the pensions they are entitled to.’

Minimum pension contributions are set to increase from 6 April 2018 and again in 2019.

Period Duration Employer minimum Total minimum contribution
1 Employer’s staging date to 5 April 2018 1% 2%
2 6 April 2018 to 5 April 2019 2% 5%
6 April 2019 onwards   3% 8%

Contact us if you would like help with auto enrolment.

Internet links: TPR press release TPR report TPR contributions increase

Tribunal rules BBC journalist is caught by ‘IR35’ legislation

A First Tier Tribunal has ruled that Christa Ackroyd who presented BBC news programme Look North and was paid via a personal service company was caught by the IR35 rules resulting in additional tax and national insurance contributions being payable.

The IR35 rules in broad terms mean that those working via a personal service company have to consider whether, if the services were provided by the individual contractor directly to the client, there would be a contract of employment.

The tribunal looked at lots of factors pertinent to Ms Ackroyd’s engagement and considered it significant that the BBC could control what work she did. She was engaged for seven years on effectively a full time basis.

Subject to any appeal and determination of final figures, the tax and NIC that Ms Ackroyd will be liable for amounts to around £420,000 before offset of corporation tax.

The IR35 rules were amended for Public Bodies (including the BBC) from April 2017 and the government has announced that it may make changes to the rules for the private sector as well in the future.

Internet link: ICAEW News

Minimum Wage increases

The National Minimum Wage (NMW) and National Living Wage (NLW) are the legal minimum wage rates that must be paid to employees. Employers are liable to be penalised for not complying with the NMW and NLW rules.

There are different levels of NMW and NLW, depending on age and whether the employee is an apprentice. The rates are due to increase from 1 April 2018 as shown in the following table:

  Rate from 1 April 2017 Rate from 1 April 2018
NLW for workers aged 25 and over £7.50 £7.83
NMW main rate for workers aged 21-24 £7.05 £7.38
NMW 18-20 rate £5.60 £5.90
NMW 16-17 rate for workers above school leaving age but under 18 £4.05 £4.20
NMW apprentice rate * £3.50 £3.70

*for apprentices under 19 or 19 or over and in the first year of their apprenticeship

There are no exemptions from paying the NMW on the grounds of the size of the business.

If you would like help with payroll matters please get in touch.

Internet link: ACAS article

Advisory fuel rates for company cars

New company car advisory fuel rates have been published which take effect from 1 March 2018. The guidance states: ‘You can use the previous rates for up to one month from the date the new rates apply’. The rates only apply to employees using a company car.

The advisory fuel rates for journeys undertaken on or after 1 March 2018 are:

Engine size Petrol
1400cc or less 11p
1401cc – 2000cc 14p
Over 2000cc 22p
Engine size LPG
1400cc or less 7p
1401cc – 2000cc 8p
Over 2000cc 13p
Engine size Diesel
1600cc or less 9p
1601cc – 2000cc 11p
Over 2000cc 13p

HMRC guidance states that the rates only apply when you either:

  • reimburse employees for business travel in their company cars or
  • require employees to repay the cost of fuel used for private travel.

You must not use these rates in any other circumstances.

If you would like to discuss your car policy, please contact us.

Internet link: GOV.UK AFR

Scotland revise income tax ban

Derek Mackay, Scottish Finance Secretary, has made a change to the proposed Scottish income tax bands for 2018/19 which he announced in December 2017 in the Scottish Draft Budget.

The change is being made to ‘remove an anomaly that meant some higher rate taxpayers saw their bills fall while others on slightly lower incomes saw a rise, due in part to changes in the personal allowance’.

Scottish taxpayers income tax rates on income other than savings and dividend income are now expected to be as follows:

Scottish Bands Band name Scottish Rate
Over £11,850 – £13,850 Starter 19%
Over £13,850 – £24,000 Basic 20%
Over £24,000 – £43,430 Intermediate 21%
Over £43,430 – £150,000 Higher 41%
Over £150,000 Top 46%

Confirming the changes during the Stage 1 of the Budget debate, Mr Mackay said:

‘As a parliament of minorities, we must work across the chamber to find compromise and consensus in order to give support, sustainability and stimulus to our economy and to our public services …. Our changes to tax ensure Scotland has a progressive tax system – with 70% of taxpayers paying less next year than they do currently and 55% paying less than they would across the rest of the UK – while businesses benefit from support for investment.’

Internet link: GOV.SCOT/news