Tax Codes in Scotland Explained
Individuals that are classed as Scottish taxpayers are given a distinctive PAYE code known as an ‘S’ code.
Tax codes in Scotland are characterised by the prefix ‘S’ used at the start of the code for example S1234L.
This special coding instructs your employer or pension provider to implement Scottish income tax rates and bands when processing your income.
Before each tax year commences, HM Revenue and Customs issues Pay As You Earn codes to all taxpayers in Scotland which you can find on payslips or in your personal tax account.
The tax free personal allowance usually makes up the main part of a tax code and it is currently the same in Scotland as it is for the rest of the UK
Scottish taxpayers should ensure that their personal allowance is correct and that the letter S is included where appropriate.
HMRC can on some occasions issue incorrect codes and so can your employer which means checking that yours is correct is worthwhile.
Common tax codes in Scotland
Some common letters and Scottish specific tax codes include:
S – Taxable income will be subject to the Scottish rate(s) of income tax.
L – You are entitled to the basic tax free personal allowance which is the same as the rest of the UK.
T – A restriction for basic, higher and additional Scottish rate taxpayers. This is a temporary coding because HMRC needs to know some extra information before issuing a permanent code.
SBR – Tax will be deducted at the basic rate in Scotland on pension or employment income.
SOT – You are not entitled to your tax free personal allowance.
SD0 – Tax will be deducted at the intermediate rate in Scotland on pension or employment income.
SD1 – Tax will be deducted at the higher rate in Scotland on pension or employment income.
SD2 – Tax will be deducted at the advanced rate in Scotland on pension or employment income.
SD3 – Tax will be deducted at the top rate in Scotland on pension or employment income.
Emergency tax codes in Scotland
Emergency tax is sometimes deducted by HMRC in a few different situations with one of the main one’s being a change in employment.
When starting new employment during the tax year, your employer might need to temporarily implement an emergency tax code whilst HMRC processes your new starter checklist information.
Emergency codes typically have a prefix of W1, M1, or a letter X at the end and they continue to be used until HMRC provides your employer with a new code.
Changing your tax code with HMRC
Updating your tax code is essential so HMRC can send your employer or pension provider the correct code.
To do this you can contact HMRC online by using their check your income online service which let’s you revise most issues relating to your code.
You can also call the HMRC income tax helpline from Monday to Friday.
If you’ve been given an ‘S’ tax code and believe this to be an error or haven’t got an ‘S’ tax code when you think you should telling HMRC as soon as possible is the best option.
Keeping your address details current on HMRC’s system is especially important because HMRC bases your Scottish tax residency mainly on where you live.
Why do I have a Scottish tax code?
The decision on whether you qualify as a Scottish taxpayer and are given a Scottish tax code rests with HMRC.
Their judgment is based primarily on the location of your main residence which is typically defined as the property where you regularly reside and spend most of your time.
The nature of your occupancy – whether you’re an owner, tenant, or occupying the property without charge – has no bearing on this classification.
For individuals residing in other parts of the United Kingdom, such as England, Wales, or Northern Ireland, Scottish income tax regulations do not apply to their earnings. These taxpayers continue to be subject to the rest of UK tax rates and bands.
If you’re uncertain about your status as a Scottish taxpayer, it’s advisable to maintain accurate records of where you live and spend your time. This information can be valuable if HMRC requires verification of your tax status.
The Scotland Act sets out further guidance on tests for Scottish taxpayer status.
For changes in circumstances such as moving between Scotland and other parts of the UK, you should inform HMRC promptly to ensure your tax affairs are kept up to date.
Are tax rates different in Scotland?
For residents of Scotland different rates of tax apply (in comparison to other parts of the UK) which is officially termed the ‘Scottish rate of income tax’ or SRIT.
The SRIT affects various forms of income, including your salary, pension payments, and most other taxable earnings.
There are currently six tax bands (seven including the personal allowance) for income tax purposes in Scotland and each band has a specific rate of tax.
The rates where income tax is applicable range from the starter rate of 19% to the top rate of 48%.
You can find all of the Scottish and the other parts of the UK’s tax bands here.
Tax rates and bands are set by the Scottish parliament who have the power to make changes to either.
It’s worth noting that dividend income and savings interest remain subject to the same tax rates as the rest of the United Kingdom.
What about national insurance contributions?
National insurance contributions are the same as the other parts of the UK. They haven’t been changed by the governement and shouldn’t affect your tax code or the amount of income tax you pay in Scotland.
