An increase in income tax in Scotland will see company car drivers north of the border face larger increases in benefit-in-kind (BIK) tax rates than those in the rest of the UK from April 6.
The new income tax rates for Scotland compared with the rest of the UK add a further layer of administrations for businesses.
The Scottish Parliament is introducing significant changes to the structure of income tax. There will be a five-band regime, which contrasts with the three-band structure applicable in England, Northern Ireland and Wales.
In Scotland, the basic rate band is effectively being split into three - starter, basic and intermediate - to which is added the higher rate band and the top rate band. Applicable income tax rates are: 19%, 20%, 21%, 41% and 46%. It means that middle income - those earning £24,001 and above - and top earners face a 1% rise in income tax versus employees in the rest of the UK. Income tax rates for the remainder of the UK are: 20%, 40% and 45% depending on earnings.
As a result of the income tax increase, a majority of company car tax drivers’ resident in Scotland will face larger increases in benefit-in-kind tax than their counterparts in the rest of the UK as an employee’s tax rate is used in the calculation.
Consequently, only a small number of company car driving employees on lower salaries are expected to escape the double hit of a benefit-in-kind tax rise and an income tax hike.