From April 2019 the Welsh Assembly will be able to vary the rate of income tax which Welsh taxpayers pay on their non-savings and non-dividend income. As with the Scottish Rate of Income Tax which applied in 2016/17, the UK basic, higher and additional rates will be reduced by 10 percentage points and the Welsh Assembly will set a single rate to replace those 10 percentage points.
Echoing the actions of the Scottish Government of the time, the Welsh Assembly has chosen to apply a rate of 10 per cent so that in 2019/20 Welsh taxpayers will continue to pay the same rates of tax as English taxpayers.
Who qualifies as a Welsh taxpayer is defined in law and as for Scottish taxpayers this requires UK tax residence and a strong attachment to the country either through a main place of residence or a day-counting test.
Ultimately responsibility for getting this designation right sits with the taxpayer under self-assessment. But with large numbers of taxpayers meeting all their tax payment obligations via the PAYE system and therefore not filing tax returns, HMRC are undertaking an exercise to identify and notify Welsh taxpayers of their status before the start of the new tax year.
A similar exercise was carried out to identify Scottish taxpayers but there is evidence that three years on, the information is still not correct. Recent reports note that HMRC have mistakenly classified at least 30,000 Scottish residents as living in England and it is not clear how such a systematic error has occurred. Anecdotal evidence suggests that their postcode allocation system may be a factor, particularly around the borders area where postcodes starting TD cover both Scottish and English addresses.
Where errors in taxpayer designation have no impact on the tax liability of individual taxpayers, it would be understandable if the affected individuals chose to leave their status unchallenged.
However, as well as calculating individual liabilities, these taxpayer designations also allow HMRC to calculate how much of the tax they collect is on behalf of the devolved administrations. Getting it wrong will therefore affect the public funds available to the Scottish Government and Welsh Assembly.
HMRC are currently carrying out a cleansing of their Welsh taxpayer data and it is understood they are using third party data from the ONS and others to corroborate their information. Hopefully they have learned lessons from Scottish devolution.