Commenting on today’s Scottish Budget, Douglas Farish, Tax Partner at Deloitte, said:

“For the second year in a row the Scottish Government has been required to set out its plans for the year ahead without knowing the full tax and spending breakdown from the UK Government. If the UK government were to make any significant changes to income tax for the rest of the UK, the Scottish Government may need to revisit its figures.

“As expected, the Scottish Government announced there will be no change to income tax rates, with starter, basic and intermediate bands increasing at the same rate as inflation. This is the first time that the Scottish higher rate threshold has increased since 2018/19, although it still lags behind the UK higher rate threshold, which is expected to be £50,270.

“Based on the changes announced today, there are modest tax savings for all Scottish taxpayers, as the starter, basic rate and intermediate bands have increased by CPI inflation giving a higher rate threshold of £43,662 (previously £43,430) while the Scottish top rate threshold remains at £150,000. It should be noted that the bulk of the savings for most taxpayers will due to the increase in the personal allowance. The maximum effect of the rate band increases is £33.20. However, the overall position does depend on any changes to the personal allowance and tax rates and bands made in the UK budget on 3 March.

“Lower earners continue to pay less tax than those in the rest of the UK; in 2020/21 the breakeven earnings were £27,243. The equivalent for 2021/22 is £27,393.

“Those earning £50,000 or less will see a small saving in national insurance due to the increase in the primary threshold from £9,500 to £9,568 annually (with equivalent figures for those paid weekly or monthly). This will give an NIC saving of up to £8.16 pa for employees and £6.12 pa for the self-employed; those earning over £9,568 will see the full savings. Higher earners will pay slightly more NIC (up to £18.84 extra) due to the increase in the upper threshold to £50,270.

“This also means there will be no further income tax divergence between Scotland and the rest of the UK. However, this is based on the assumption that UK personal allowance and higher rate tax will be increased in line with the Consumer Prices Index, as set out in the 2020 Spending Review, so there remains an element of uncertainty for Scottish taxpayers until the UK Government gives its full fiscal statement on 3 March.”