As Scotland has different income tax rates to the rest of the UK, military personnel on the same salary are paying a different amount of tax depending on where they live. For many of those in the Armed Services, if they live in Scotland, they are paying more income tax than if they were living elsewhere in Britain. It has been acknowledged that this is unfair and the government has decided to repay the nearly 8,000 troops who have been affected.

How does the income tax rate system look in Scotland?

In an attempt to make the entire income tax system more “progressive”, the Scottish government have implement a more multi-layered scheme. Basically, there is a ‘starter’ rate of 19% for those earning between £11,850 and £13,850. A 21% rate for those on £24,000 to £44,273. And an extra percentage for higher rate and additional rate tax payers, at 41% and 46% respectively.

So, those on lower incomes pay a bit less, those on higher incomes pay a bit more and the amounts are slightly different to the rest of the UK’s income tax rates. 

What difference does this make to military personnel?

For the lower ranks, this actually means a reduction of about £20 per year in their income tax bill. But for those higher than private, there is a substantial increase. According to the government, this applies to nearly two thirds of all MoD employees based in Scotland.

As reported by the BBC, potential figures are: £117 more for a staff sergeant, £660 more for a major, an extra £863 for a lieutenant colonel and £1,013 more for a full colonel. Obviously, this has the potential to make Scotland “less attractive place for military personnel to be posted to”, as stated by the government.

How is the UK government solving this problem?

The UK government’s solution is to give all military staff based in Scotland one yearly amount to repay the difference. As they are posted to their Scottish deployment, they have no choice but to pay the Scottish rate of income tax. But it is unfair that they have to pay more than their colleagues. The government expects to reimburse a total of £4 million in this tax year. To individuals, that means a cheque for anywhere between £12 and £1,500.

Gavin Williamson, UK Defence Secretary, supports this move, saying: “It is completely wrong for the brave men and women of our armed forces to be punished for serving in Scotland by unfair raids on their pay packets by the Scottish government. That’s why we have taken this urgent action to ensure that our troops are treated equally and fairly.”

What is the Scottish government’s position?

The Scottish government made it clear that they have been open to discussion about the issue of how the new Scottish income tax rates impact on military personnel, but have had no reply from the UK government.

Derek Mackay, Scottish Finance Secretary, said: “As a result of the Scottish government’s progressive tax system 70% of people in Scotland are paying less tax this year than they did last year for a given income and we hope those who have seen their tax bills reduce will not be disadvantaged by the UK government’s proposals. We are fully committed to supporting the armed forces community and armed forces families in Scotland benefit from services not available elsewhere in the UK, such as free school meals, prescriptions and eye tests, and tuition fee and living cost support in higher education when they are ordinarily resident. It is disappointing that, despite making an offer to discuss the differential taxation of military personnel, the Scottish government has not been consulted on the proposal announced by the MoD.”

The government’s current solution has an annual review built in, perhaps they will be able to work together with the Scottish government going forward, so that our Armed Service personnel are not financially disadvantaged.