A guide to Welsh taxation from April 2019 A guide to Welsh taxation from April 2019

A guide to Welsh taxation from April 2019
10 Sep 2018

The UK will experience much change in 2019, not least in terms of Brexit. Announcements here are being eagerly anticipated to see whether agreement can be reached with the European Union on mutually beneficial terms for exiting the trade bloc.

Payroll, in both administrative management and software terms, will also undergo further significant change. Under the Wales Act 2014, the Assembly for Wales has had its powers extended, enabling it to set its own basic, higher and additional income tax rates for Welsh taxpayers (as defined in section 116E). 

The new Welsh Rate of Income Tax (WRIT) will also kick in from the start of the UK tax year on 6 April 2019 and its administration will be undertaken by Her Majesty’s Revenue & Customs (HMRC) as part of the wider UK tax system that is applied to non-savings income. 

Unlike the Scottish Parliament, which is authorised to set both rates and earnings bands, the Welsh Assembly’s powers only extend to setting tax rates for each level. This means that earnings bands will remain aligned between England, Northern Ireland and Wales for the foreseeable future.

In terms of rates, the Assembly will be able to set them from zero to any number that comprises a full or half penny in the pound. The rate applied to each band could differ but will be added to each of the UK rate bands minus 10%. 

A taxpayer resident in the UK for tax purposes, whose sole or main place of residence is in Wales for more of the tax year than any other part of the UK, will be expected to pay WRIT for that entire tax year. As a result, employees could see their tax liabilities change throughout the tax year or require reconciliation if they moved around the UK before deciding at some point to live in Wales for longer than any other area. Their WRIT liability will apply to the money earned during the entire tax year as there is no liability split.

The unenviable task of determining who is Welsh will be based on data held within HMRC’s systems. Employers and pension payers are not entitled to determine this status and, as with Scotland, a school leaver or a new starter without a P45 cannot declare themselves liable to pay WRIT – that is subject to a judgment and instruction to apply from HMRC.

C for Cymru

Welsh resident taxpayers will be identified through a new indicator of ‘C’ for ‘Cymru’ (the name of the Welsh language), which will be applied to either the start of their tax code or as a special indicator on some electronic messages. This means that all UK employers will need to ensure their payroll systems are ready to accept the new ‘C’ indicator and are also up to calculating tax on a different basis should the Welsh Assembly apply any other rate than 10%. 

Employers and pension payers have been asked to ensure employees and pensioners check their Personal Tax Account so that HMRC has their correct address details. Individuals often think their employer has responsibility for notifying HMRC of an address change, but it is actually their own responsibility. Those being requested to undertake a Self Assessment will be asked about their country of residence on the online tax return.

But a major challenge in software terms at least relates to timing. While it may have been confirmed that the Assembly is only permitted to change the rate and not the bands and early indications are that rates will remain at 10%, because no party in the Assembly has a majority, the outcome is still uncertain. This means that any changes could be very last minute. If the rates change to anything other than 10%, payroll software providers can expect to have to cope with tight implementation times. 

While section 116D of WRIT requires that the Welsh Assembly set rates, the Assembly itself must pass a Resolution to this end before the start of the tax year. The Welsh Government and Assembly are obliged to make arrangements for doing so in the annual budget cycle. But if the rates are not set by the end of November, HMRC could make assumptions in relation to how tax codes are applied.

Of course, from an employer perspective, payroll views and outputs will all need to be revised to prepare for WRIT’s introduction. If applicable, payslips will need to show the ‘C’ prefix for tax codes and P45 print routines will have to be amended to include it. P60  and associated Real Time Information electronic exchange files must also be checked to ensure that ‘C’ prefixes are appropriately applied.

As a result, HMRC has stated that it will issue Welsh ‘C’ tax codes to all Welsh taxpayers within Pay as you Earn (PAYE) and to their employers or pension payers before the start of the 2019/2020 tax year. It also plans to send out revised coding notices as required on in-year P6s or as part of annual coding exercises, which usually take place from February prior to the start of the tax year.

HMRC has likewise indicated that, subject to confidentiality obligations, it is entitled to inform appropriate third parties such as employers and pension payers (or their agents) that an individual will henceforth be subject to WRIT.

Simon Parsons

Simon Parsons is director of payment, benefits and compliance strategies at HR and payroll services provider, SD Worx. He is also involved in a number of HMRC and government consultative groups and committees. As a fellow of the Chartered Institute of Payroll Professionals and one of the original Masters of Science in Payroll Management, Simon is also a regular author and speaker on payroll matters.

OTHER ARTICLES THAT MAY INTEREST YOU

UK payroll changes continue to pile up into 2019 

The UK and crown dependencies: Understanding the tax difference

Scottish government to raise taxes on higher earners

 

The UK will experience much change in 2019, not least in terms of Brexit. Announcements here are being eagerly anticipated to see whether agreement can be reached with the European Union on mutually beneficial terms for exiting the trade bloc.

Payroll, in both administrative management and software terms, will also undergo further significant change. Under the Wales Act 2014, the Assembly for Wales has had its powers extended, enabling it to set its own basic, higher and additional income tax rates for Welsh taxpayers (as defined in section 116E). 

The new Welsh Rate of Income Tax (WRIT) will also kick in from the start of the UK tax year on 6 April 2019 and its administration will be undertaken by Her Majesty’s Revenue & Customs (HMRC) as part of the wider UK tax system that is applied to non-savings income. 

Unlike the Scottish Parliament, which is authorised to set both rates and earnings bands, the Welsh Assembly’s powers only extend to setting tax rates for each level. This means that earnings bands will remain aligned between England, Northern Ireland and Wales for the foreseeable future.

In terms of rates, the Assembly will be able to set them from zero to any number that comprises a full or half penny in the pound. The rate applied to each band could differ but will be added to each of the UK rate bands minus 10%. 

A taxpayer resident in the UK for tax purposes, whose sole or main place of residence is in Wales for more of the tax year than any other part of the UK, will be expected to pay WRIT for that entire tax year. As a result, employees could see their tax liabilities change throughout the tax year or require reconciliation if they moved around the UK before deciding at some point to live in Wales for longer than any other area. Their WRIT liability will apply to the money earned during the entire tax year as there is no liability split.

The unenviable task of determining who is Welsh will be based on data held within HMRC’s systems. Employers and pension payers are not entitled to determine this status and, as with Scotland, a school leaver or a new starter without a P45 cannot declare themselves liable to pay WRIT – that is subject to a judgment and instruction to apply from HMRC.

C for Cymru

Welsh resident taxpayers will be identified through a new indicator of ‘C’ for ‘Cymru’ (the name of the Welsh language), which will be applied to either the start of their tax code or as a special indicator on some electronic messages. This means that all UK employers will need to ensure their payroll systems are ready to accept the new ‘C’ indicator and are also up to calculating tax on a different basis should the Welsh Assembly apply any other rate than 10%. 

Employers and pension payers have been asked to ensure employees and pensioners check their Personal Tax Account so that HMRC has their correct address details. Individuals often think their employer has responsibility for notifying HMRC of an address change, but it is actually their own responsibility. Those being requested to undertake a Self Assessment will be asked about their country of residence on the online tax return.

But a major challenge in software terms at least relates to timing. While it may have been confirmed that the Assembly is only permitted to change the rate and not the bands and early indications are that rates will remain at 10%, because no party in the Assembly has a majority, the outcome is still uncertain. This means that any changes could be very last minute. If the rates change to anything other than 10%, payroll software providers can expect to have to cope with tight implementation times. 

While section 116D of WRIT requires that the Welsh Assembly set rates, the Assembly itself must pass a Resolution to this end before the start of the tax year. The Welsh Government and Assembly are obliged to make arrangements for doing so in the annual budget cycle. But if the rates are not set by the end of November, HMRC could make assumptions in relation to how tax codes are applied.

Of course, from an employer perspective, payroll views and outputs will all need to be revised to prepare for WRIT’s introduction. If applicable, payslips will need to show the ‘C’ prefix for tax codes and P45 print routines will have to be amended to include it. P60  and associated Real Time Information electronic exchange files must also be checked to ensure that ‘C’ prefixes are appropriately applied.

As a result, HMRC has stated that it will issue Welsh ‘C’ tax codes to all Welsh taxpayers within Pay as you Earn (PAYE) and to their employers or pension payers before the start of the 2019/2020 tax year. It also plans to send out revised coding notices as required on in-year P6s or as part of annual coding exercises, which usually take place from February prior to the start of the tax year.

HMRC has likewise indicated that, subject to confidentiality obligations, it is entitled to inform appropriate third parties such as employers and pension payers (or their agents) that an individual will henceforth be subject to WRIT.

Simon Parsons

Simon Parsons is director of payment, benefits and compliance strategies at HR and payroll services provider, SD Worx. He is also involved in a number of HMRC and government consultative groups and committees. As a fellow of the Chartered Institute of Payroll Professionals and one of the original Masters of Science in Payroll Management, Simon is also a regular author and speaker on payroll matters.

OTHER ARTICLES THAT MAY INTEREST YOU

UK payroll changes continue to pile up into 2019 

The UK and crown dependencies: Understanding the tax difference

Scottish government to raise taxes on higher earners