PwC response to Draft Scottish Budget
Comments by Sharon Blain, Senior Tax Manager
“The gap between the income tax liability of middle earners in Scotland and the rest of the UK will widen further following Derek Mackay’s decision to freeze the higher income threshold at £43,430 from April while the UK threshold increases to £50,000.
“The respective changes to thresholds mean that anyone earning more than £30,000 a year in Scotland is worse off than if they lived south of the Border, and while it remains difficult to quantify the impact the divergence in income tax will have on attracting talent and skills to Scotland, there also remains a potential headache of tax equalisation for employers, who may find themselves being asked to foot the bill.
“In the context of funding local services, especially adult social care, there is evidence that people would be prepared to contribute more but for many, today’s announcements make Scotland a more expensive place to live, adding further complications to businesses’ ability to attract talent south of the Border to move to Scotland.
“The disparity is compounded by the fact that the income tax thresholds in Scotland are not aligned to National Insurance Contributions (NICs) thresholds which are set by the UK Government. As a result, more middle-earners will from next year see more than half of a portion of their earnings going to the taxman.
“Earnings between £43,430 and £50,000 (2019-2020) are subject to an effective tax rate of 53%, because NICs only drop from 12% to 2% on earnings above the UK higher tax threshold of £50,000.
“This means that for Scottish taxpayers a chunk of more than £6,000 is subject to both the higher income tax rate of 41% and the higher NICs rate of 12%.”
“The additional dwelling supplement increasing from 3% to 4% is going further than the UK, which introduced the 3% rule which was followed by Scotland, which may dampen the buy to let market but these costs could be passed to tenants, who may see rental levels increase.”
“Ensuring that increases in business rates will be capped below inflation will be welcomed by businesses, as will the Finance Secretary’s decision not to introduce an out of town supplement. The £50m capital fund to help rejuvenate high streets will also be welcomed, though we await further detail on how this will distributed across Scotland’s towns and cities.”