Border politics: why identical roles in one company face varying tax charges
Border politics play a significant role in the differing tax charges faced by workers in southern Scotland compared to their colleagues just across the border in England. Employees working for the same company, performing similar roles, can experience different income tax rates depending on whether they live in Scotland or England. This disparity is particularly noticeable in companies operating near the Scotland-England border.
Tax differences for workers in southern Scotland and northern England
Since 2018, the Scottish government has implemented a distinct income tax system that differs from the rest of the UK. This system features six tax bands, including a 19% starter rate, a 20% basic rate, an intermediate 21% rate, and three higher rates of 42%, 45%, and 48%. The Scottish system is designed to be more progressive, taxing lower earners slightly less but higher earners more than the UK system.
For example, at the Carlisle-based accountancy firm Armstrong Watson, two employees with similar roles but living on opposite sides of the border pay different amounts of tax. Scott McIver, who lives in Dumfries, Scotland, and Graham Poles, who lives in Cumbria, England, both work for the same company but take home different net salaries due to the tax rates applied in their respective countries.
Poles explained that colleagues living in Scotland and earning between £45,000 and £50,000 are subject to the 42% higher rate tax, while their English counterparts remain basic rate taxpayers. This results in a Scottish worker earning £50,000 paying approximately £1,496 more in income tax annually than a colleague living in Carlisle with the same salary.
Impact on take-home pay and lifestyle decisions
While most Scots benefit from lower taxes under the current system, with the Scottish Fiscal Commission forecasting that 55% of Scots pay less tax than they would elsewhere in the UK, the savings for lower earners are modest—up to £40 annually. However, for higher earners such as senior managers, partners, and executives, the tax difference becomes more significant.
Poles noted that at salaries around £100,000, the tax difference can reach £4,000 annually, which may influence decisions about where to live and work. Despite this, McIver said the tax difference is not currently enough to prompt him to move south of the border, citing family ties and lifestyle considerations.
The Scottish government uses the additional tax revenue to fund public services, including free university tuition for Scottish residents and free NHS medical prescriptions. In contrast, England charges tuition fees and prescription costs, although many prescriptions are exempt from charges due to various criteria.
Water bills in Scotland are included in council tax and remain among the lowest in the UK despite recent increases. These public service differences contribute to the overall financial considerations for individuals living near the border.
Political party positions on income tax ahead of the Scottish Parliament election
With the Scottish Parliament election approaching, income tax policies are a key issue for voters in southern Scotland. The six main political parties have outlined their positions on income tax:
- Scottish Conservatives: Propose raising the income tax threshold in line with inflation and increasing the higher rate threshold to £50,270 to match the UK system.
- SNP: Support maintaining the current six-band progressive tax system, aiming to keep it fair and simple without increasing rates or bands.
- Scottish Labour: Plan to avoid increasing income tax rates and seek to reduce the tax burden to stimulate economic growth.
- Scottish Liberal Democrats: Aim to lift tax thresholds with inflation and reduce the tax differential with England, including funding research into the tax system’s impacts.
- Reform Party Scotland: Propose aligning Scottish income tax bands with the three UK bands and cutting rates by 1p below each band, with a medium-term goal of a 3p reduction.
- Scottish Greens: Advocate retaining a progressive income tax system and introducing a higher rate on landlords’ rental income.
The differing tax systems and political proposals highlight the complexities of border politics and their impact on workers with identical roles but varying tax charges depending on their residence.