Question, I am a management consultant contracting with clients through my own limited company. I normally ensure my salary and dividends drawn from my company stay below the higher tax band, however for the 2017-18 tax year I am a bit confused as I live permanently in Scotland but I also travel down to visit my clients in London where I stay overnight quite regularly, on average two nights per week. I understand there are different tax bands for Scottish residents now?

 

Scottish resident contractor 2017-18

Answer, August 2017

In previous tax years you would not have any issues as the higher tax band was the same all across the UK.

However for the 2017-18 tax year (6th April 2017 to 5th April 2018) Scottish tax residents have a slightly lower level at which the higher tax band kicks in than the rest of the UK.

For Scottish tax payers the higher tax band is £43,000 for 2017-18 (assuming a standard personal allowance), whereas for the rest of the UK the higher tax band is £45,000.

Please note that for the 2017-18 tax year, the higher tax band is the only difference in tax rates between Scotland and the rest of the UK, but future tax years may see more / different changes.

However the new lower higher tax band for Scottish tax payers does not currently affect dividends, so for dividend income tax purposes for the 2017-18 tax year, the higher tax band is the same as for the rest of the UK at £45,000 so the optimised combination of low salary and dividends would be £45,000, see our article here.

However it may still be useful to understand when a tax payer is considered a Scottish resident or not – the tax payer lives in Scotland but does some work outside of Scotland, so the question is how do we determine if a tax payer is a Scottish resident or not?

If you live in more than one home then you have to determine which is your main residence – your main home will usually be where you live and spend most of your time.

In the example of this blog post, the visits to London are on average two nights per week, which means the majority of the time the tax payer is living in their home in Scotland so they will be considered to be a Scottish resident.

Your tax payer status will be for a whole tax year – you can’t be a Scottish tax payer for just part of a tax year.

Tip : You can find our advice for optimum salary and dividend levels for 2017-18 in our article HERE.

When it comes to filing your personal tax return there is a box that you need to select to tell HMRC that you are a Scottish tax payer, this will ensure that your tax is calculated correctly.

With regards to tax codes HMRC will issue you with a tax code that has an ‘S’ at the beginning which tells your employer or pension provider to deduct tax at the Scottish rate.

You should make sure that HMRC have your most current personal address as this will help make sure you are issued the correct tax code.