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New rules to determine 'Scottish taxpayer'

Income tax rules: why you may have to count your days at home

Tax returnAnyone who has homes in Scotland and England will have to count the number of days they are in one or the other to determine whether they pay their income tax to London or Edinburgh.

HMRC has released new guidelines on who should be regarded as a Scottish taxpayer ahead of powers being transferred to Holyrood next year.

The Scottish parliament will set its own Scottish rate of income tax and will be able to alter rates by up to 10% of the UK rate.

Tax experts admit there are complications over residency issues for those who spend time working or living in Scotland and England, as well as for armed forces staff, and anyone who regularly travels.

Employers are now being consulted on a number of compliance issues from PAYE definitions to residency questions. They have only until the end of July to make their views known.

HMRC states that ‘”for the vast majority of individuals, the question of whether or not they are a Scottish taxpayer will be a simple one – they will either live in Scotland and thus be a Scottish taxpayer or live elsewhere in the UK and not be a Scottish taxpayer.”

However, tax specialists have warned that the new rules will be open to interpretation, particularly for those who travel extensively for work, but live in different nations.

One tax expert David Boyd, a partner at Scott-Moncrieff, said: “With Scotland and the UK about to have different tax regimes, it’s only natural that the question of residency has come up. Is there advantage to be had by being rooted in Scotland, and if so, what defines residency?

“This isn’t just a matter for Scottish employers to be concerned with, because employers outside Scotland who employ individuals who are resident in Scotland will need to be able to operate the correct PAYE code to ensure that the Scottish rate of income tax (SRIT) is deducted.”

Individuals who have more than one place of residence in the UK need to determine which of these has been their main place of residence for the longest period in a tax year.

Those who are unable to identify a main place of residence will need to count the days they spend in Scotland and elsewhere in the UK.

HMRC’s 19-page guidance notes state that if the main place of residence has been in Scotland for more of the tax year than in any other part of the UK they will be regarded as a Scottish taxpayer.

Places of temporary accommodation, for example hotels and holiday homes, do not constitute a “place of residence” although, the HMRC says this is not specifically defined in the Scotland Act. HMRC indicates that current case law will determine interpretations of ‘place of residence’.

The guidance states that “where an individual spends at least as many days in Scotland as elsewhere in the UK they are a Scottish taxpayer”.

HMRC is also working with the Ministry of Defence on the preparation of separate guidance to ensure that all service personnel will have clarity on how SRIT will apply to their individual circumstances prior to its introduction. This guidance will be available later this year.


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