The Income Tax (Pay As You Earn) (Amendment) Regulations 2018

EXPLANATORY NOTE

(This note is not part of the Regulations)

These Regulations make various amendments to the Income Tax (Pay As You Earn) Regulations 2003 (S.I. 2003/2682) (“The PAYE Regulations”). In particular consequential amendments are made following a rate resolution made by the Scottish Parliament on 20 February 2018 under section 80C of the Scotland Act 1998 introducing two new bands for income tax for the tax year 2018-19 for Scottish taxpayers – the starter rate (which is lower than the Scottish basic rate) and the intermediate rate (which is in between the Scottish basic rate and Scottish higher rate).

Regulation 1 provides for citation and commencement.

Regulation 2 introduces the amendments to the PAYE Regulations.

Regulation 3 amends regulation 2 of the PAYE Regulations which provides for interpretation. Amendments and insertions are made to provide for rates lower and higher than the Scottish basic rate as set by the Scottish Parliament under section 80C of the Scotland Act 1998.

Regulation 4 amends regulation 7 of the PAYE Regulations which deals with codes. Amendments are made so tax codes can reflect the different rates and bands of income tax which been set by the Scottish Parliament for Scottish taxpayers which are lower and higher than the Scottish basic rate.

Regulation 5 amends regulation 15 of the PAYE Regulations which deals with flat rate codes. An amendment is made to provide for a Scottish upper rate code which can be used for Scottish taxpayers who are chargeable to income tax at a Scottish tax rate higher than Scottish basic rate.

Regulation 6 inserts new regulation 32B which provides for deduction of tax at a Scottish upper rate code.

Regulations 7 to 16 make amendments to Part 6 of the PAYE Regulations. The application procedure for employers to enter PAYE Settlement Agreements (“PSAs”) is changed: PSAs can be processed electronically and the duration of PSAs is extended by removing the need for annual renewal with the consequence that PSAs will continue to be in force for each subsequent tax year until cancelled by notice. Regulation 9 also makes a consequential amendment to regulation 108 reflecting the fact that the Scottish Parliament may set the rates and bands of income tax for Scottish taxpayers.

Regulations 17 to 20 make amendments to regulations 133A B, C and D of Chapter 2A of Part 7 of the PAYE Regulations which deal with the deduction of tax that must be made by the Department for Work and Pensions on paying social security lump sums. References to the basic rate and higher rate are omitted and replaced with references to 20% and 40% respectively.

Regulations 21 to 23 correct minor errors in regulations 147B, 147C and 147L of the PAYE Regulations as inserted by regulation 3 of the Income Tax (Pay As You Earn) (Amendment) Regulations 2017 (S.I. 2017/414).

An Impact Assessment covering this instrument (regulations 3 to 6) was published on 28 May 2015 alongside the draft clauses and explanatory notes for the Scotland Bill and is available on the website at http://www.parliament.uk/documents/impact-assessments/IA15-004.pdf. It remains an accurate summary of the impacts that apply to this instrument.

A Tax Information and Impact Note for the Apprenticeship Levy (regulations 21 to 23 of this instrument) was published on 4 February 2016 alongside the draft clauses and explanatory notes for the Finance Bill 2016 and is available on the website at https://www.gov.uk/government/publications/apprenticeship-levy. It remains an accurate summary of the impacts that apply to this instrument.