Scottish income tax change could cause problems for SMEs » SMEInsider

Scottish income tax change could cause problems for SMEs

With HMRC tweaking the way it collects income tax in Scotland, small business owners and their staff could face a potential payroll headache, accountants have warned.


New system for Scotland

The new rates, which will apply to workers that live in Scotland, will be proposed later this month and apply from 6 April 2016.

While the onus is on HMRC and employees to decide the appropriate tax jurisdiction, employers will need to make sure their payroll software is in order to deal with the change. The taxman will let them know who the Scottish taxpayers will be – and an ‘S’ will be added to the start of their tax code.


Inevitable teething difficulties

Various forms and payslip will need amending, while HMRC’s employer guidance states: “You’ll need to adjust your IT systems to collect the right amount.”

RSM’s head of tax in Scotland, Stephen Hay, has warned that the change will place “important administrative burdens” upon employers.

“All employers with Scottish resident employees – or even a single worker living in Scotland – will still need to be set up to deal with the new regime and have payroll software which can cope with the new codes,” said Hay.

“It is also likely that employers will have to respond to queries from their staff, and deal with the inevitable teething difficulties that the introduction of the new rate will bring – particularly in the event that the Scottish government decides to raise or lower the rate.”