Explanatory note

These Regulations make consequential amendments to the Income Tax (Pay As You Earn) Regulations 2003 (S.I. 2003/2682) (“the principal Regulations”) which make provision for the assessment, charge, collection and recovery of income tax in respect of all pay as you earn (“PAYE”) income.

Regulations 3 to 5 make consequential amendments to the principal Regulations as a consequence of the powers of the Scottish Parliament to set a Scottish rate of income tax on non-savings income provided for in Part 4A of the Scotland Act 1998 (c. 46). The power is expected to be exercisable for the tax year 2016-17 and subsequent tax years.

Regulation 3 amends the definitions of “additional rate”, “basic rate” and “higher rate” in regulation 2 of the principal Regulations to reflect the Scottish rate of income tax and to replace the references to the Income and Corporation Taxes Act 1988 (c. 1) with references to the Income Tax Act 2007 (c. 3) (as a consequence of the Tax Law Re-write Project). Regulation 3 also inserts definitions of “Scottish rate” and “Scottish taxpayer” into regulation 2 of the principal Regulations.

Regulation 4 inserts a new paragraph (2A) into regulation 7 of the principal Regulations to reflect the “S code” which will be used where an employee is a Scottish taxpayer.

Regulation 5 inserts definitions of “basic rate” and “higher rate” into regulation 133A of the principal Regulations for the purposes of Chapter 2A. This Chapter applies where an individual defers receipt of the state pension. The individual subsequently receives a lump sum from which the Department for Work and Pensions has deducted tax at the appropriate rate (such rate being determined in accordance with regulation 133C of the principal Regulations). As a consequence of these amendments an individual who is, for instance, a basic rate taxpayer will have tax deducted at source at the rate determined under section 6(2) of the Income Tax Act 2007 (c. 3) even if that individual is a Scottish taxpayer.

A Tax Information and Impact Note covering this instrument was published on 19th March 2014 at Budget 2014 and is available at http://www.gov.uk/government/collections/tax-information-and-impact-notes-tiins. It remains an accurate summary of the impacts that apply to this instrument.