Scottish taxpayer status – HMRC publish draft guidance

Mon 22 Jun 2015

HMRC have published draft guidance on how to decide if an individual is a “Scottish taxpayer”.

When the Scottish rate of income tax (SRIT) comes into effect on 6 April 2016 it will apply to non-savings, non-dividend income only. Therefore it will apply to:

·         employment earnings;

·         self-employed and professional profits;

·         property income; and

·         sundry other income.

The income it will not apply to is:

·         interest, including the disposal of the right to interest;

·         dividends and other distributions from UK companies, including stock dividends and write-offs of close companies loans to participators;

·         profits from deeply discounted securities;

·         artificial transactions in futures and options;

·         accrued income scheme ITA 2007 Pt. 12;

·         unit trusts;

·         collective investment schemes; and

• annual payments.

For the definition of savings income see SAIM1060.

There are also no plans to differentiate NIC between Scotland and the rest of the UK.

You are or you aren’t: only one status per year

Scottish taxpayer status applies only to individuals who are UK-resident in a tax year but once UK-residence is established there is no split-year treatment between Scotland and the rest of the UK.

It will be interesting to see how things change if/when Wales and Northern Ireland acquire devolved income tax powers.

The statutory residence test is not used

Whilst it may be necessary to determine whether the person is UK-resident using the statutory residence test (SRT), that test is not used to decide intra-UK residence issues between Scotland and the rest of the UK.

Moving cross-border: count the days

Where a person moves residence between Scotland and another part of the UK so that there is only one residence at any time, it is the one occupied for longer that determines Scottish or non-Scottish residence for the year.

Main residence will usually be the determining factor

Most people only have one residence and for those who have more than one at the same time it is usually possible to identify which is the main one on the basis that they occupy it more and Scotland is or is not the place with which they have the stronger enduring connection, evidenced by factors such as:

·         where a married person or civil partner’s family spend the majority of their time (it is not stated in the guidance but similar considerations should also apply to non-formalised relationships);

·         where children go to school;

·         voting registration;

·         furnishing and possessions kept in each residence;

·         where correspondence (e.g. from HMRC and banks) is received;

·         registration with doctor and dentist;

·         car registration; and the main residence for council tax purposes.

This will be relevant where the person has two residences at the same time and may come into play when a family moves in stages, e.g. breadwinner first, followed later by family or vice versa.

Place of work is not a relevant factor

The guidance makes it clear, including by examples, that what matters is the place where the person resides that matters, not where they work. So cross-border workers, e.g. one who lives in Dumfries and works in Carlisle, don’t have to reconsider employment options due to the threat of higher taxation.

No residence doesn’t mean non-residence

A person may have a number of residences, none of which can be identified as the main one, or they may have no UK-residence, e.g. where touring around the country in a mobile home or taking a series of assignments. If this is the case and they do not have a permanent base to go back to in the UK the deciding factor is the number of days spent in Scotland compared to the number of days in other parts of the UK.

The example used in the guidance is of a lorry driver who lives in Bradford but drives all around the UK. He has one main residence in Bradford, so where he spends the night is irrelevant. But if he had no home and lived in his sleeper cab he would have to count the nights. (NB there is a very large overnight truckstop on the M6 just south of the border).

Day counting depends on midnight

As in the SRT a day is spent in the country where the individual is at midnight.

Days spent completely outside the UK or in transit through between a non-UK departure point and a non-UK destination are completely ignored. The definition of a transit day is the same restrictive one as applies in the SRT.

Special cases

Scottish parliamentarians always are Scottish taxpayers

Anyone who represents a Scottish constituency at:

·         Westminster, as an MP;

·         Holyrood, as an MSP; or

·         Strasbourg/Brussels, as an MEP for Scotland

at any time in a year is a Scottish taxpayer in that year. This is regardless of how briefly they are in office.

Military personnel

Additional guidance will be produced for UK military personnel to provide clarity to them. Service personnel may be more mobile and have less control over where they are required to be when serving. There can also be issues where they are on active service outside the UK but still have a home here.