Welsh Rates of Income Tax (WRIT) become a reality in 2019/20, courtesy of provisions in the Government of Wales Act (GOWA) 2006, as amended by the Wales Act 2014...
HMRC have confirmed that Welsh Taxpayers will have tax codes prefixed with the letter C (not W).
This is not immediately clear, however, it could be for a few reasons:
- Cymru is the Welsh name for the country of Wales
- Cymry is the collective name for Welsh people, or
- Cymraeg is the name for the Welsh language
Whatever, it’s Welsh and C is more appropriate than W.
What’s Welsh Tax again?
This will not be like:
- The Income Tax that applies for rUK Taxpayers at the moment
- The Scottish Rate of Income Tax (SRIT) regime that applied for one year for Scottish Taxpayers
- The Scottish Income Tax (SIT) regime that applies at the moment
Although, there are similarities to SRIT.
From April 2019, the UK Government will reduce the three rUK rates of Income Tax by 10 percentage points for Welsh Taxpayers. The block grant paid by the UK Government to the Welsh Government will be adjusted. This means that, without intervention by the Welsh Government, the rates of Income Tax will be reduced to 10%, 30% and 35%. That is all well and good for the Welsh Taxpayer, however, not good for the funding of public services in Wales. Therefore, as part of the annual Budget process, the National Assembly for Wales will decide the Welsh rates that will be added to the reduced rUK rates. These will be set by a Welsh Rate Resolution.
So, it could be that the Welsh Government decide not to change the rates of Income Tax at all for Welsh Taxpayers. This will still require action, as the 10 percentage points will have to be added back on. Or, it could be that the Welsh Government want the lower paid to pay less and the middle and higher earners to pay more, for example 17%, 42% and 48%. This will require a Welsh Rate Resolution to set:
- A Welsh Basic rate at 7% (i.e. 10% + 7% = 17%)
- A Welsh Higher rate at 12% (i.e. 30% + 12% = 42%)
- A Welsh Additional rate at 13% (i.e. 35% + 13% = 48%)
What we do know is that the current Welsh Labour Government has committed not to increase Income Tax rates for the duration of the current Assembly, which is due to continue until May 2021. This 2016 Manifesto commitment does not say that it won’t reduce the tax rates. However, regardless of whether they are lowered, raised or stay the same, there will still be a need for a Welsh Rate Resolution.
WRIT will apply to non-savings, non-dividend (NSND) taxable income.
What will stay the same?
The Welsh Government can only amend the tax rates for Welsh Taxpayers:
- Income Tax will still be collected by HMRC, the central UK tax collection agency
- The tax allowances will still be set UK-wide by the UK Government in Westminster
- The tax thresholds will stay the same as those applying to rUK taxpayers (simply, all UK Taxpayers who are not deemed by HMRC to be Scottish Taxpayers)
- The Income Tax liability on savings and dividend taxable income will remain with the UK Government
- Payroll software will calculate the tax and remittances will continue to be made to HMRC
When will we know?
A block grant agreement for Wales has been renegotiated, which should provide more certainty on Wales’ fiscal outlook. Indeed, Professor Mark Drakeford, Cabinet Secretary for Finance, was able to provide a high-level ‘outline Budget’ in October of 2017.
However, it seems highly unlikely that the necessary Welsh Rate Resolution will be passed before the UK Autumn Budget is held November / December time.
To be honest, with the commitment not to raise the tax rates for this Assembly session, I wonder if the Welsh Government are planning to make changes that will see a divergence of rates from those that apply for rUK Taxpayers. However, it is only the Welsh Rate Resolution that will confirm this and Manifesto commitments have been known to be broken before.
So, WRIT is a reality and one that employers, HMRC and software developers should be planning for. WRIT will be paid using the rUK thresholds. In effect, WRIT is SRIT+!