On 06 February 2020, Kate Forbes, now Cabinet Secretary for Finance presented the draft Scottish Budget for 2020/21. This is important for the people of Scotland given the amount of issues that are devolved to Scotland from Westminster. It is important for the UK-wide payroll profession as it indicated the proposed tax rates and bands that would apply to Scottish Taxpayers in the tax year 2020/21.

However, the Scottish National Party (SNP) run a minority administration in Scotland.  Therefore, the Budget needed the support of other parties to get the Budget Bill to pass – or needed a sufficient number of abstentions.

A Coalition – again

On 26 February 2020, Kate Forbes announced that a Budget agreement had been reached, again with the Scottish Green Party.  This agreement would see the Scottish Budget pass all there stages of their ‘scrutiny’ process.  In previous years, such a coalition meant changes to the Income Tax announcements from the draft Budget.

However, the agreement in February 2020 imposed no such conditions.

The Scottish Rate Resolution

Stage 2 of the Budget process in Scotland requires the all-important agreement of the Scottish Rate Resolution (SRR), the official setting of the tax rates and thresholds that will apply in the following tax year.

Motion S5M-21090 proposed by Ben Macpherson (SNP) and supported by Kate Forbes read as follows:

Scottish Rate Resolution

That the Parliament agrees that, for the purposes of section 11A of the Income Tax Act 2007 (which provides for income tax to be charged at Scottish rates on certain non-savings and non-dividend income of a Scottish taxpayer), the Scottish rates and limits for the tax year 2020-21 are as follows:

  • a starter rate of 19%, charged on income up to a limit of £2,085,
  • the Scottish basic rate is 20%, charged on income above £2,085 and up to a limit of £12,658,
  • an intermediate rate of 21%, charged on income above £12,658 and up to a limit of £30,930,
  • a higher rate of 41%, charged on income above £30,930 and up to a limit of £150,000, and
  • a top rate of 46%, charged on income above £150,000

Members of the Scottish Parliament (MSPs) voted to pass the resolution by 58 votes to 50 with 5 abstentions.

The Budget cleared Stage 2 and was ratified as the Budget (Scotland) (No.4) Bill when MSPs approved Stage 3 on 05 March 2020 by 63 votes to 55 (all Greens).  However, it is the SRR that gives payroll and software developer professionals some certainty for the upcoming tax year.

The Rates and Thresholds
The Rates

The 5 rates of tax for Scottish Taxpayers remain unchanged:

Band Rate 2020/21
Scottish Starter 19
Scottish Basic 20
Scottish Intermediate 21
Scottish Higher 41
Scottish Top 46
The Thresholds

The Budget raises the size of these thresholds by the rate of inflation rather than raising the threshold values by the rate of inflation.  This move actually means that the threshold increases are below inflation.  The Scottish Higher and Top rate thresholds are frozen at 2019/20 levels:

Therefore, the following thresholds will apply for each of the above rates of Income Tax, compared to those that applied in 2019/20:

Band 2019/20 2020/21
£ £
Scottish Starter 1 – 2,049 1 – 2,085
Scottish Basic 2,050 – 12,444 2,086 – 12,658
Scottish Intermediate 12,445 – 30, 930 12,659 – 30, 930
Scottish Higher 30,391 – 150,000 30,391 – 150,000
Scottish Top Over 150,000 Over 150,000


The below shows the bands of earnings taxable at the relevant Scottish rates:

Band 2019/20 2020/21 Change
£ £ £
Scottish Starter 2,049 2,085 +36
Scottish Basic 10,395 10,573 +178
Scottish Intermediate 18,486 18,272 -214
Scottish Higher 119,070 119,070 0
Scottish Top Over 150,000 Over 150,000 0
What happens next?

This is not simple at all.

HMRC have indicated that the tax rates and thresholds for each of the separate Income Tax regimes in the UK may not be implemented on 06 April 2020.  Whilst they will probably be effective from this date, payroll and software developer professionals may have to look at implementing them some time later in the tax year, backdated to the start of the tax year.

Further, MSPs have warned Kate Forbes that she should be prepared to be flexible on the tax rates and thresholds that have been set in the SRR.  This comes as a result of the UK’s ex-Chancellor of the Exchequer’s announcement that he was planning to reduce the rUK rates of tax by 2p in the pound in his Budget.  This raise the possibility that his successor Rishi Sunak may do something similar.

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