Community & Support News

Welsh Rates of Income Tax

From 6 April 2019, all Defence personnel who are classed as Welsh taxpayers will pay Welsh rates of income tax. This is embedded in legislation as part of the devolution settlement.

The MOD supports the devolution of further powers to Wales and other devolved nations; whilst Defence remains a reserved matter, the power to set income tax rates is not and has been devolved.

Action Required

All MOD employees are encouraged to regularly check the tax code issued to them by Her Majesty’s Revenue and Customs (HMRC) – this can be found on your monthly pay statement.

All MOD employees are encouraged to go online and, where necessary, provide HMRC with details of their current address. They should also update HMRC each time that their personal circumstances change. The address given to HMRC should be the “main place of residence” for tax purposes as outlined below.

All MOD employees who receive correspondence from HMRC about their taxpayer status should respond promptly if required to do so to correct any incorrect assumption made about their “main place of residence”.

Further details are in DIN01-140  (internal users only), but there are some useful Q&As below:

Q. Am I a Welsh taxpayer?

A. You are a Welsh taxpayer if you meet the criteria laid down by HMRC, i.e. if your main place of residence in any tax year is in Wales. Annex B to the DIN above provides some worked examples of how some SP may be a Welsh taxpayer whereas others may not. If HMRC have already identified you as a Welsh taxpayer you will, from 6 April 2019, already have a Welsh tax code with an C suffix (e.g. C1185L).

Q. I have a Welsh tax code but I do not think I am a Welsh taxpayer. What should I do?

A. If you believe that you have been wrongly identified as a Welsh taxpayer then you should contact HMRC and have the error corrected. Details on how to do this are on the last (Change of Circumstances) section of Annex A to the DIN above.

Q. I do not have a Welsh tax code but I think I am a Welsh taxpayer. What should I do?

A. If you believe that you have been wrongly identified as a UK taxpayer then you should contact HMRC and have the error corrected. Details on how to do this are on the last (Change of Circumstances) section of Annex A to the DIN.

Q. Why is it not possible for MOD to simply apply UK income tax to all SP at source rather than have the difficulty of trying to seek to compensate SP separately after the fact?

A. The law requires HMRC to issue Welsh tax codes to those SP who meet the criteria of being a Welsh taxpayer, and the law requires MOD to deduct income tax through ‘Pay As You Earn’ arrangements in strict accordance with the tax codes issued by HMRC for each individual employee. Without a change in the law MOD cannot simply ignore the Welsh rates of income tax and apply UK income tax to all.

Q. Council tax levied on SP in Service accommodation is harmonised so that SP pay the same wherever they live in the UK. Why can’t the same approach be adopted for income tax?

A. As explained in the last answer above, the law dictates what can and cannot be achieved. For Service accommodation (but not private accommodation owned or rented by SP) there is a longstanding exemption from council tax within the relevant regulations which allows MOD to instead calculate and levy through the payroll a separate Contribution in Lieu of Council Tax (CILOCT) daily charge.

Q. Why should SP pay higher rates of income tax in one part of the UK compared to another?

A. The decision to devolve powers to the individual countries which make up the United Kingdom, and to introduce devolved administrations in Scotland, Wales and Northern Ireland, has been the policy of successive governments. As part of that process greater powers have been introduced over time and it has been widely recognised that political accountability locally is best served when local politicians are responsible for setting taxation rates as well as spending any monies collected on local services. SP and their families, as users of local services, should, like other taxpayers in the community, be able to hold their local politicians to account for the decisions they make which affects them. The MOD supports the devolution of further powers to Wales and other devolved nations; whilst Defence remains a reserved matter, the power to set rates of income tax are not and have been devolved.

Q. I live in Northern Ireland; can I expect to pay different rates of income tax here soon?

A. There are currently no income tax setting powers devolved to Northern Ireland.

Q. If I serve overseas I can claim Local Overseas Allowance (LOA) to compensate for the additional cost of living associated with being resident there. Why is the same consideration not given to service in a devolved Wales where the cost of living through additional taxation is potentially different?

A. LOA aims to provide a contribution towards the necessary additional local cost of day-to-day living to those living and serving in overseas locations. LOA does not cover local taxes as all UK Crown servants are required by law to pay UK rates of income tax when serving/working abroad on UK Government business. Up until recently there has only been one type of UK income tax. However, under devolution there are now three types of UK taxation (Welsh, Scottish and the remainder of the UK). Should it be judged necessary to make a similar contribution towards the additional cost of paying Welsh rates of income tax then this will be decided and communicated to the workforce on a year-by year basis.