Workers are being urged to check their payslips this month for tax code errors after the new financial year started on April 6. Employees who have also received a pay rise may see their deductions also increase, meaning that despite an income boost, it may be lost to income tax or National Insurance deductions.
Changes to income tax have now come into force that are estimated to raise more than half a billion pounds of additional revenue to support vital public services across the country during 2023/24. The tax rates for earnings between £12,571 and £43,662 remain the same while earnings above £43,663 are now taxed at the Higher tax rate of 42 per cent.
The threshold at which people pay the Top Rate of tax has reduced from £150,000 to £125,140 with earnings over that threshold now taxed at 47 per cent.
The Scottish Fiscal Commission predicts these changes will raise £129 million in 2023-24. The Higher Rate threshold will also remain at its 2022-23 level, applying to earnings over £43,662, which will increase revenue by a further £390million when compared to uprating the threshold by inflation, according to Scottish Government estimates.
Deputy First Minister Shona Robison said: “The decisions we have made on income tax are fair and progressive by ensuring that those who can, contribute more. They strengthen our social contract with the people of Scotland who will continue to enjoy many benefits not available in the rest of the UK such as free prescriptions.
“The additional revenue will help us invest in our vital public services including the NHS, above and beyond the funding received from the UK Government. At the same time, the majority of taxpayers in Scotland will still be paying less income tax than if they lived in the rest of the UK.”
She added: “Now that the new financial year has started, I’d also encourage people to check that the tax code is correct on the first payslip they get. If you think your tax code is wrong, you can check your details with HMRC [HM Revenue and Customs] who will be able to help.”
Scottish Tax Bands
The rates and bands in the table below are based on the UK Personal Allowance in 2023 to 2024, which is £12,570.
Bands:
- £12,571 - £14,732: (Starter Rate) - 19%
- £14,733 - £25,688 (Scottish Basic Rate) - 20%
- £25,689 - £43,662 (Intermediate Rate) - 21%
- £43,663 - £125,140 (Higher Rate) - 42%
- Above £125,140 (Top Rate) - 47%
Understanding your tax code
People paying Scottish Income Tax should have a tax code that starts with an ‘S’. Your tax code is the number that tells your employer or your pension provider how much tax to deduct from your income. The most common one is 1257L, which is based on the Personal Tax Allowance of £12,570 - this is the amount you can earn before you need to pay tax.
If your tax code is wrong, you could be paying more tax than you need to and be due a refund, but similarly, you could also be on a lower tax rate and owe HMRC money.
Checking your tax code
The easiest way to do this is to look at your payslip. One you have a note of your Personal Allowance tax code, you can go to the GOV.UK website and use the online “Check your Income Tax for the current year" service. This tool, which covers the current tax year, can be used to check your tax code and Personal Allowance, and to see if a tax code has changed.
Other options available through this online service include allowing users to see an estimate of how much tax they will pay over the whole tax year. However, the service cannot be used by self-employed workers. The GOV.UK website explains: "You cannot use this service if Self Assessment is the only way you pay Income Tax.”
What the tax code numbers mean
The numbers in an employee’s tax code show how much tax-free income they get in that tax year, this is known as your Personal Allowance. You usually multiply the number in the tax code by 10 to get the total amount of income they can earn before being taxed.
For example, an employee with the tax code 1257L can earn £12,570 before being taxed. If they earn £30,000 per year, taxable income is £17,430 (£30,000 - £12,570).
What the letters mean
Letters in an employee’s tax code refer to their situation and how it affects their Personal Allowance. The full list of tax code letters and what they mean can be found on the UK.Gov website here.
Most commonly used letters:
L - For an employee entitled to the standard tax-free Personal Allowance
S - For an employee whose main home is in Scotland
BR/ SBR - For a second job or pension
M - For an employee whose spouse or civil partner has transferred some of their Personal Allowance
N - For an employee who has transferred some of their Personal Allowance to their spouse or civil partner
T - When HMRC needs to review some items with the employee
If your tax code has ‘W1’ or ‘M1’ at the end
W1 (week 1) and M1 (month 1) are emergency tax codes and appear at the end of an employee’s tax code, for example ‘577L W1’ or ‘577L M1’.
The tax code letter ‘K’ is used when deductions due for company benefits, State Pension or tax owed from previous years are greater than their Personal Allowance.
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