Welsh Rates of Income Tax (WRIT) 2023/24

On 13 December 2022, Rebecca Evans, Minister for Finance and Local Government Minister for Finance and Local Government published the outline and detailed Welsh Draft Budget entitled ‘A Budget in Hard Times ’.?

This contained the Welsh Government’s taxation plans for 2023/24 including proposals for the Welsh Rates of income Tax (WRIT).??

Income Tax is not a devolved tax.? It is what is known as a shared tax.?

The underlying taxation rules are still set by the UK Government in Westminster, for example, what is and what is not subject to Income Tax and the annual Personal Allowance.? However, Wales share with them some powers with regards the rates of Income Tax payable by Welsh Taxpayers.

The Welsh Rates of Income Tax (WRIT) regime allows the Welsh Government to take the rates of Income Tax that apply in rUK countries (‘rest of the UK’, i.e. excluding Scotland who have different Income Tax sharing powers) and reduce them by ten percentage points.? So, based on the current rates:

• 20% becomes 10%
• 40% becomes 30% and
• 45% becomes 35%

Then, depending on the revenue that Wales needs to generate, they set a WRIT for each tax rate.? Assuming that the Welsh Government wanted to increase the rates of Income Tax for Welsh Taxpayers by 1p in every ￡, the WRIT would be set as follows:

• Basic 11% (20 – 10 + 11 = 21%)
• Higher 11% (40 – 10 + 11 = 41%)
• Additional 11% (45 – 10 + 11 = 46%)

The Welsh rates are calculated based on the earnings bands that apply in the rUK countries.

A consideration of the Welsh Budget is that the party forming the Welsh Government (Welsh Labour) run a minority Government.? Whilst they hold 30 of the 60 Senedd seats, this does not give them a majority.?

In previous years, therefore, Welsh Labour have had to make changes to their Draft Budget plans in order to get support from at least one other Senedd party. ??In 2021, however, Welsh Labour signed a co-operation agreement with Plaid Cymru.? This is not a coalition but is an agreement that they will work together on several policy issues.? This should mean that the Draft Budget has been constructed in light of this co-operation agreement and, hopefully, will result in the proposals being voted through without amendment.

This is a positive step as we go through the next steps:

• 07 February 2023 – Draft Budget debate
• 28 February 2023 – Publication of the Final Budget
• 07 March 2023 – the Final Budget debate

Point 3.10 refers to the Welsh Rates of Income Tax being ‘partially devolved’.? This is reference to the fact that some of the Income Tax powers have been devolved, namely the ability for the Welsh Government to set its own rates for Welsh Taxpayers.

However, it is not a devolved tax in legislation and we need to divorce ourselves from the word devolved when it comes to Income Tax. It is a shared form of taxation.

The Welsh Labour have a 2021 manifesto commitment that says the Welsh Government will:

The Draft Budget does not refer to this, instead referring to the ‘Tax policy work plan 2021-2026 ’ which is, itself, a reflection of the Manifesto commitment.? Point 3.11 confirms this commitment for 2023/24 which allows me to explain as follows:

The UK Government have confirmed that the following rates will apply in tax year 2023/24:

A Welsh Rate Resolution in March 2023 will set the following:?

• Welsh Basic Rate 10%
• Welsh Higher Rate 10%
• Welsh Additional Rate 10%

From the above and the rates announced in the Draft Budget, the rate of Income Tax payable by Welsh Taxpayers is as follows:

Welsh Taxpayers pay Income Tax according to the derived rates applied to the bands that apply in all UK countries except Scotland where different Income Tax sharing powers apply.? In 2023/24, these bands are as follows, compared to those that apply in tax year 2022/23:

Coupled with the rates above and the value of the UK-wide Personal Allowance (￡12,570), the below may be a clearer table of the Income Tax ‘bracket’ that Welsh Taxpayers will fall into:

The 3 WRIT ensure that Welsh Taxpayers will pay the same Income Tax as Taxpayers in rUK countries (i.e. any country that is not Scotland).? This is good news for me!? It is also good news for software developers.

There are some important points though:

• Income Tax is not a devolved tax but is a shared one
• Payroll software must respect the fact that the Welsh Rates of Income Tax may be aligned with rUK countries (and always have been).? However, that may not always be the case
• Look out for 07 March 2023 when the Welsh Rate Resolution will be passed in the Senedd