Income Tax in Wales Is Changing – What You Need to Know

Welsh Flag and blue sky imageFrom April 2019, people living in Wales will begin paying some of their income tax directly to the Welsh Government. Under the current system, 100% of the funds collected go to the UK Government.

The change, which is similar to how the Scottish rate of income tax (SRIT) works, will allow the Welsh Government to play a role in the collection of tax, as well as enabling them to vary the rate of Income Tax paid by Welsh taxpayers to fund various public services.

Find out more about what’s changing, how it will impact Welsh taxpayers and employers, and what the current rates of Income Tax in the UK are in our latest blog post.

Why Is the Change Coming into Place?

Following recommendations by two commissions, the UK Government decided that the Welsh Government should be able to play a greater role in collecting money raised through taxes – this money funds vital public services and infrastructures such as schools, hospitals and roads.

How Will the New System Work?

Under the new system, Welsh taxpayers will pay 10 pence less, per pound, in Income Tax to the UK Government, instead, they will pay a rate set by the Welsh Government which is yet to be released.

As this rate may differ in different areas of Wales, it could be the case that some Welsh taxpayers end up paying less or more Income Tax than English taxpayers.

The money will still be collected by HMRC, with the Welsh Government able to use the additional tax for Welsh public services.

What Will the Changes Mean For…

Employees / Taxpayers

Behind the biggest change of a potential increase or decrease in the amount of Income Tax they pay, Welsh taxpayers will also need to be aware of the change to their tax codes, which will change to have a prefix of “C” (Cymru).

For example, if a taxpayer previously had a code of 1185L, the new coding would be C1185L.

This will not have any immediate or profound impact on taxpayers, but the self-employed and sole traders need to be aware of any change to their tax code for the purpose of their annual Self-Assessment returns.

Furthermore, should a taxpayer move their permanent address and become a Welsh resident and taxpayer, they need to keep HMRC informed to ensure that their new rate of Income Tax reflects this.

Employers

The biggest change for employers will be the aforementioned change to tax codes, meaning that if they employ anyone that is a Welsh taxpayer, they will need to ensure their payroll and accounting software is equipped to handle PAYE under the new tax codes once the change comes in.

Employer guidance surrounding the changes in terms of payroll operation is expected by January 2019 once the new rates are approved, employers will also always receive a letter from HMRC if one of their employees tax codes is changing.

What Are the Current Rates of Income Tax?

The rate of Income Tax you pay depends on how much you earn, how much of your earnings are above your Personal Allowance and what tax band you fall into. The current rates of Income Tax for the 2018 – 2019 tax year are as follows:

Tax Band Taxable Income Tax Rate
Personal Allowance Up to £11,850 0%
Basic Rate £11,851 to £46,350 20%
Higher Rate £46,351 to £150,000 40%
Additional Rate Over £150,000 45%

The Welsh Government are yet to release their proposed rates of Income Tax, which will need to be voted on by the National Assembly before coming into force.

Talk to The Experts

If you’re working in England but are a Welsh taxpayer, or are an employer based in England with Welsh employees – you’ll need to ensure your software and payroll infrastructure is equipped to deal with the changes to tax codes.

Being based so close to the Severn Bridge, we are well placed to ensure that your accounting and payroll is equipped for the upcoming change. For more advice and information, give one of our friendly experts a call today on 0117 379 0810.

Megan

Megan

As well as having Payroll experience, Meg is our main point of contact for auto-enrolment setup. Now a qualified member of AAT, Meg is building her portfolio of accounting clients in a variety of sectors.
Megan