The Government of Wales Act 2006 enables the Senedd Cymru to set a Welsh basic, higher and additional rate of Income Tax to apply to the non-savings and non-dividend income of Welsh taxpayers. This power was first used in respect of the 2019 to 2020 tax year, and the rates continue to remain the same as those for England and Northern Ireland (NI) for the 2020 to 2021 tax year.
Welsh Rates of Income Tax (WRIT) works by reducing the UK rate by 10p in £1. WRIT is charged on top of these reduced rates, and can be lower, higher or the same as the UK rates.
Welsh Income Tax rates in 2021 to 2022
HM Revenue and Customs (HMRC) administers WRIT through existing Pay As You Earn (PAYE) and Self Assessment (SA) processes, including through existing approaches to Income Tax compliance and communications. This ensures the correct amount of tax is collected, and in the vast majority of cases Welsh taxpayers will notice no difference in how HMRC interacts with them.
This report sets out information about HMRC’s administration of WRIT, covering:
identification and assurance of Welsh taxpayers
the collection of and accounting for WRIT revenues
customer service and support
data for WRIT rate setting and forecasting
governance and oversight of WRIT
the costs of delivering WRIT and recharging of HMRC costs
Section 1: Identification and Assurance
Who is a Welsh taxpayer?
For most people, whether or not they are a Welsh taxpayer in a given tax year is a matter of fact. Individuals who live in Wales, and have their sole or main place of residence there, are Welsh taxpayers. Those whose sole or main place of residence is located elsewhere in the UK are not Welsh taxpayers. A Welsh taxpayer must be resident in the UK for income tax purposes.
If a person has more than 1 place of residence, it will be where their main place or places of residence are. If a person has 2 or more ‘main places of residence’ in different parts of the UK it will be if their main place of residence was in Wales for more of the year than it has been in any other part of the UK.
Members of the Senedd and Members of Parliament who represent constituencies in Wales are also Welsh taxpayers, regardless of their address. As they are not subject to the normal business rules regarding residency, we operate a separate process to ensure they have the correct residency status applied.
Identification and assurance work
The National Audit Office (NAO) highlights identifying Welsh taxpayers as the key challenge of HMRC’s administration of WRIT. There is no definitive data set of Welsh residents against which to judge success, but we are confident in our identification of Welsh taxpayers.
The population is not static, and the latest figures suggest that an estimated 129,000 people (not all of whom will be taxpayers) move across the border each year, about 69,000 from the rest of the UK to Wales and 60,000 in the other direction. Work to identify Welsh taxpayers is therefore an on-going process, and we work closely with the Welsh government to ensure that this remains robust.
Third party data clash
In 2021, we worked with an external supplier to carry out a third party data clash. This is where HMRC’s address data for individuals across the UK is compared with data held by third parties, for example the electoral roll and credit reference agencies. Under our current arrangements with the Welsh government we conduct a data clash every other year.
Where the initial scan indicated that an individual may live in a different region than that recorded in HMRC’s address data, we wrote to these individuals asking them to ensure the address HMRC held for them was accurate. In 2021, we wrote to approximately 9,000 individuals.
Following the initial scan carried out by our supplier, we carry out our own analysis of the results to assess the accuracy of HMRC’s identification of Welsh taxpayers. We compare records unmatched in the initial scan against the latest PAYE and Self Assessment records. Analysis following the latest scan suggested that the correct Welsh taxpayer status has been applied in 98 to 99% of cases. The remaining 1% to 2% are not necessarily wrong, but they are uncorroborated. Uncorroborated cases are likely to be in respect of ceased or inactive accounts.
The uncorroborated cases are likely to be in respect of ceased or inactive accounts which is why we were unable to identify them in our data. Therefore, there is no risk to Welsh income tax revenues of failing to corroborate these records as Welsh as there is no income tax liability for them.
These results are in line with the analysis of previous scan results, and provides evidence that the accuracy of HMRC’s address data remains high.
Postcodes and the properties within them occasionally change to reflect new properties being built and subdivision of existing properties. HMRC receives quarterly postcode updates from the Office of National Statistics (ONS) and updates its processes for flagging Welsh residency to ensure ongoing accuracy of HMRC’s record of postcodes and their residency statuses.
HMRC conducts scans to identify any data quality issues and make corrections. There will always be the need to assure the quality of the data we receive, and this is not an issue specific to WRIT. Our address data comes from a variety of sources, including individuals, employers and other government departments. The vast majority of the address data recorded on our systems has no issues, however a small minority requires correcting.
HMRC relies on data from external sources in order to complete our records, and issues with the quality of the data we receive are outside our control. We have a program of work in place to ensure that any data issues for Welsh taxpayer records are identified and corrected, preventing any loss of revenue to the Welsh government.
The scan to assure the quality of our address data operates in 2 parts:
identification of taxpayer records with a Welsh postcode prefix but where the postcode is not recorded on HMRC’s list of live and deleted Welsh postcodes
identification of taxpayer records with a blank postcode but which has a key word in the body of the address that indicates it is a Welsh postcode, e.g. Cardiff
The results of this scan for 2021 to 2022 were:
Although there has been a small increase in the number of blank postcodes with a Welsh key word, this remains a very small percentage of Welsh postcodes.
All cases where an individual had either an employment or a pension were corrected to ensure that the correct residency status was applied for the year. This ensures that the Welsh government does not lose any tax as a result of data quality issues.
Communication is crucial to our efforts to accurately identify Welsh taxpayers. HMRC has continued to use the extensive existing channels of communications it has with taxpayers and employers to reinforce key messages on WRIT. Communications to customers have been through channels including online social media, the Personal Tax Account, and the Annual Tax Summaries. These communications have focused on the need for customers to update their address details with HMRC when they move.
HMRC’s communications with employers have been through channels including the Employer Bulletin, Agent Update, Customer Compliance Managers’ engagement with large businesses and public bodies, forums for employers, payroll managers and agents, gov.uk, and online social media. These communications have focused on reminding employers of the importance of them correctly applying the ‘C’ codes issued to them by HMRC.
Employers’ application of Welsh codes
When HMRC identifies an individual in PAYE as a Welsh taxpayer, a code is issued to their employer for them to operate. All tax codes for Welsh taxpayers have an ‘C’ prefix. The vast majority of employers operate the codes issued to them with the ‘C’ prefix, but a small minority do not and instead operate the rest of UK version of the code, without the ‘C’ prefix.
Individuals impacted by these errors are still identified as Welsh taxpayers by HMRC, and the correct amount of tax is paid to the Welsh government. Because Welsh and rest of UK rates are the same, no one pays the wrong amount of tax as a result of these error. This would change if the rates were to diverge, although end of year reconciliation would ensure that any over- or under-payments are corrected.
HMRC has a program of work in place to support employers to correctly apply the Welsh codes issued to them. We carry out regular scans to monitor how many employments are missing the ‘C’ prefix. The results from 2021 to 2022 were:
The issue of employers not applying the codes issued to them by HMRC is much broader than WRIT, and there are a number of reasons why this occurs. In many cases, employers failing to apply ‘C’ codes relates to a software error or missing update.
Our approach to tackling missing ‘C’ prefixes therefore focuses on reminding, educating, and supporting employers to correctly apply the codes issued to them. Where this is not happening, we reissue codes to employers to notify them of the error and, where possible in cases where employers are continually getting this wrong, we contact the employer to understand why and help them to get it right.
This approach has successfully reduced the error rate for employments missing the ‘C’ prefix from around 10% in 2019 to 2020 to around 2% in 2021 to 2022. The scans conducted in 2021 to 2022 showed that, in most months, the error rate was lower than it had been in the same month in 2020 to 2021. We will continue to work with the Welsh government and employers to drive the error rate as low as possible.
Section 2: Compliance
Compliance checks into tax affairs of Welsh taxpayers
HMRC assesses compliance risks and undertakes checks into the tax affairs of UK taxpayers, including Welsh taxpayers.
HMRC applies risk-based compliance activity to the collection of WRIT in the same way as is applied to the collection of income tax from taxpayers in the rest of the UK. This includes conducting enquiries into Welsh Self Assessment customers. The Welsh government is not recharged for this activity.
Due to the interaction of PAYE, Self Assessment and tax legislation, HMRC is looking at risks over multiple years in order to take the most appropriate compliance action.
WRIT remains aligned with England and Northern Ireland so there is currently no differential that might drive a risk of behavioural change in Welsh taxpayers.
For all individuals, whether in Self Assessment or PAYE, HMRC monitors cross-border migration trends through comparison of customer base, analysis of returns and changes to tax accounts to identify possible evidence of customer behavioural response. HMRC also validates the accuracy of reported moves and the completeness of its address data. HMRC will continue communications activity to customers, reinforcing the need to update address details with HMRC when they move.
There is no differential between WRIT and UK rates, so HMRC does not expect to see behaviour change related to WRIT. HMRC continues to undertake compliance activity into Welsh taxpayers for areas other than WRIT, and if that work shows any trends behaviour that could also be relevant to WRIT compliance that will be considered in future periods.
HMRC continues to use the existing Customer Compliance Manager (CCM) model and other interactions with wealthy customers to raise awareness, educate customers about their WRIT obligations and assess compliance risk related to misrepresentation of Welsh taxpayer status or understatement of income liable to WRIT.
Section 3: Welsh rates of Income Tax revenues, rate setting and forecasting
Since the introduction of WRIT rates on 6 April 2019, HMRC has continued to administer and collect Income Tax from Welsh taxpayers as part of the UK tax system. It pays WRIT revenues into the UK Consolidated Fund in the same way as it does for all other tax receipts. These revenues are subsequently transferred to the Welsh government and the Welsh government’s resource block grant will be reduced accordingly, reflecting its revenue-raising powers.
In July 2022 HMRC released a statistical publication, WRIT Outturn Statistics, which included the information shown in the HMRC accounts and further breakdowns of WRIT and equivalent information for taxpayers in the rest of the UK. The outturn is calculated following the submission deadline for Self Assessment returns, meaning there is a delay between the end of the tax year and the publication of the outturn for that year. The 2021 to 2022 outturn will not be published until 2023.
WRIT outturn 2020 to 2021
For 2020 to 2021, the amount of Income Tax attributable to the Welsh government budget is £4.896 billion. The table below shows the revenue from Income Tax on Non-Saving/Non-Dividend (NSND) income for WRIT taxpayers and comparable rest of UK (rUK, representing English and Northern Irish) taxpayers in 2020 to 2021 (for example 10p at the basic rate, 10p at the higher rate, and 10p at the additional rate.). The table also shows the components of the figures.
2020 to 2021 Income Tax Revenue from NSND Income of Welsh and non-Welsh Taxpayers
The time lag in confirming the actual WRIT outturn amount for 2020 to 2021 is due to the PAYE and Self Assessment processes. To administer PAYE for taxpayers, HMRC undertakes an end-of-year-reconciliation to assess whether individuals have paid too much or too little tax in any given tax year. Similarly, taxpayers are not required to submit Self Assessment returns to HMRC until 10 months after the end of the tax year to which they relate.
HMRC has worked closely with the Welsh government to develop an agreed work plan. This details the analysis and data that HMRC will provide to the Welsh government to support them in their analytical work. Officials meet regularly to ensure new priorities are discussed and factored in against existing commitments. As part of this, both parties have agreed what new information would be useful to help provide more understanding of the WRIT outturn.
HMRC provides the Welsh government with relevant data for WRIT. At a UK level, these tasks are fulfilled using the Survey of Personal Incomes (SPI).
The SPI is compiled to provide a quantified evidence base from which to cost proposed changes to tax rates, personal allowances and other tax reliefs for Treasury Ministers. It is used to inform policy decisions within HMRC and the Treasury, as well as for tax modelling and forecasting purposes.
The SPI is based on information held by HMRC on individuals who could be liable to UK tax. It is carried out annually by HMRC and covers income assessable to tax for each tax year. Not all of the individuals are taxpayers because the operation of personal reliefs and allowances may remove them from liability. Where income exceeds the threshold for operation of PAYE, the survey provides the most comprehensive and accurate official source of data on personal incomes.
HMRC provides the Welsh government with an updated copy of the SPI data set annually. This copy was identical to that used, for similar purposes, at a UK level, with the exception of some minor aggregation of taxpayer data at the highest income levels to avoid potential breaches of taxpayer confidentiality. HMRC continues to work with the Welsh government and the Office for Budget Responsibility (OBR) to ensure the information provided meets their requirements and supports forecasting and rate setting for Wales.
From 2019 to 2020, with the introduction of WRIT, there has been a reduction in the Welsh government’s resource block grant. This is equivalent to 10 percentage points from each tax rate of non-savings non-dividend Income Tax generated from Welsh taxpayers, uplifted using the mechanism set out in the fiscal framework agreed between the UK and Welsh Governments in December 2016.
Each year, both the tax receipts generated and the block grant deduction will initially be based on a forecast and then reconciled to actual receipts collected which will become known around 15 months after the end of the financial year in question.
HMRC must provide the Welsh government with sufficient data to discharge its duties in respect of cash management linked to any change between forecast and collected amounts of WRIT. To fulfil this requirement HMRC have agreed with the Welsh government to provide WRIT figures from the Real Time Information (RTI) data received from employers. This is the best indication of trends in Income Tax liabilities available in real time but is not a complete picture of Income Tax liabilities because it excludes tax paid through Self Assessment (and some adjustments made to PAYE liabilities) after the end of the tax year.
HMRC works closely with the Welsh government ensure we provide them with the required analysis. HMRC delivered a variety of analytical outputs on WRIT for the Welsh government in 2021 to 2022, including:
Section 4: Customer service and support
HMRC administers WRIT as part of the UK Income Tax system. In the vast majority of circumstances Welsh taxpayers will therefore notice no difference in the way HMRC interacts with them. This approach also ensures that the correct amount of tax is collected.
WRIT is collected through existing PAYE and Self Assessment processes, which have been adapted to reflect WRIT rates. Welsh taxpayers are able to use HMRC’s usual guidance and customer contact channels for advice and information.
In the majority of areas customer service provided to Welsh taxpayers will therefore be included and reported within HMRC’s UK-wide customer service reporting.
The customer service and support for Welsh taxpayers, agents and employers that HMRC has incorporated into its existing processes includes the following:
providing all Welsh taxpayers and their employers with Welsh tax codes prior to the start of the tax year
updating online calculators prior to the start of the tax year with the WRIT rates set by the Senedd to ensure they remain accurate for Welsh taxpayers
guidance for payroll software providers on how to correctly incorporate Welsh rates into their PAYE products for employers
guidance on how Welsh taxpayer status is decided and what to do if you feel HMRC has wrongly identified your status
encouraging customers to update their personal details, focusing on the use of Personal Tax Account
issuing paper tax tables to digitally exempt employers prior to the start of the tax year reflecting Welsh rates
Some aspects of customer service are specific to WRIT, for example guidance on Welsh taxpayer status and ability to discuss with HMRC if you disagree with the Welsh residency status you’ve been given.
It is important that HMRC can demonstrate that its customer service in these areas matches what it provides across the UK as a whole. The Service Level Agreement (SLA) between HMRC and the Welsh government therefore commits HMRC to collect and report on key, WRIT specific, customer contact metrics. The key metrics for 2021 to 2022 are outlined in the Annex to this report, the Annual Business Intelligence Report.
Welsh Language Service
HMRC has a well-established Welsh language service that is more than 30 years old and delivered under the 1993 Welsh Language Act. Approximately 32 full-time staff are employed for Welsh language work.
HMRC delivers the majority of its Welsh language services using 2 dedicated teams of Welsh speakers based in Porthmadog and Cardiff. They provide customer service support and translation services, as well as helping other areas of HMRC with Welsh language issues. There is also a designated Welsh speaking senior manager for Welsh language who is based in Cardiff and is the first point of contact for all things Welsh language in HMRC.
Welsh language customer support for WRIT is supported by both teams in various ways. HMRC also offers a Welsh language customer service option from the main Income Tax helpline. HMRC receives around 20,000 calls from Welsh language customers each year across all our customer services.
Section 5: Governance and oversight
The governance arrangements in place for HMRC’s administration of WRIT ensure that we are fulfilling our obligations and meeting the needs of the Welsh government. HMRC’s administration of WRIT is governed jointly by HMRC and the Welsh government, and we work closely with them to ensure that there is sufficient oversight of our administration of WRIT.
Service Level Agreement (SLA)
Our SLA with the Welsh government sets out HMRC’s obligations for administering WRIT, and the performance measures for monitoring this. It ensures a consistent quality of service to Welsh taxpayers and allows HMRC and the Welsh government to meet their respective responsibilities.
The SLA is reviewed annually by HMRC and the Welsh government. For the 2021 to 2022 tax year, only minor changes were agreed. This included adding a commitment on continuous improvement, setting out that HMRC will, in line with its practices, ensure that improvements to its processes and procedures for administering WRIT are implemented where possible and cost effective.
The signatories to the SLA in HMRC and the Welsh government meet twice a year to review HMRC’s progress in administering WRIT.
Welsh Rates of Income Tax Board
The Welsh Rates of Income Tax Board meets quarterly to review HMRC’s administration of WRIT. It is comprised of representatives from both HMRC and the Welsh government, drawing its membership from areas across HMRC which have a key role to play in our administration of WRIT. Chairing responsibilities are shared between HMRC and the Welsh government.
In 2021 to 2022, the Welsh Rates of Income Tax Board discussed a range of matters related to HMRC’s administration of WRIT. This included approving the methodology for calculating the 2020 to 2021 Welsh outturn, approving the costs to be recharged to the Welsh government, agreeing the proposed changes to the SLA, and reviewing the Compliance Plan for 2021 to 2022.
Due to the coronavirus (COVID-19) pandemic, during 2021 to 2022 all meetings of the Welsh Rates of Income Tax Board were held virtually. Ordinarily meetings alternate between London and Cardiff.
Devolved Analytical Working Group
The Devolved Analytical Working Group is compromised of representatives from HMRC, Welsh government, Scottish government, the OBR, and the Scottish Fiscal Commission.
The working group meets regularly, and discusses, among other things, the methodology HMRC uses to calculate the Welsh rates of income tax outturn, and other analytical work carried out by HMRC for the Welsh government.
Under the Fiscal Framework Agreement between the UK and Welsh government, the Welsh government reimburses HMRC for net additional costs wholly and necessarily incurred as a result of the implementation and administration of WRIT.
HMRC has a robust process in place to ensure that we accurately identify the costs of administering WRIT. We ensure we provide the Welsh government with sufficient evidence allow the Welsh government to assure itself of the accuracy of the costs to be recharged.
As part of this process, we have in place the Rechargeable Costs Framework to set out our approach to and obligations for recharging costs to the Welsh government. This is annexed to the SLA and is reviewed annually.
We provide the Welsh government with a report each month to ensure they have a timely view of the costs to be recharged, which happens on a quarterly basis. An invoice is only raised once the Welsh Rates of Income Tax Board is satisfied that the costs are accurate.
In 2021 to 2022, the costs recharged to the Welsh government by HMRC for the administration of WRIT were:
HMRC recharges both the costs of implementing and the costs of operating WRIT. Implementation costs were the initial costs of setting up HMRC’s administration of WRIT, whilst operating costs are the day-to-day costs of this administration.
The charts below show the historic costs of implementing and operating WRIT that have been recharged to the Welsh government, and how implementation costs have, over time, reduced. Were the Welsh government to make further changes to WRIT, there would likely be further implementation costs.
Note: For ‘total cost of Welsh Rates of Income Tax invoiced in final year’, figures shown may not be an exact sum of implementation and operating costs due to invoicing schedules.
In addition to the internal governance structure agreed by HMRC and the Welsh government, HMRC’s administration of WRIT is also overseen by several external bodies.
The National Audit Office (NAO)
The NAO audits HMRC’s administration of WRIT annually. In January 2022, the NAO published its report into HMRC’s performance in 2020 to 2021. The report found that ‘HMRC has adequate rules and procedures in place to ensure the proper assessment and collection of WRIT and those rules are being complied with.’
The NAO did not make any recommendations for improvement, and their positive assessment of HMRC’s administration of WRIT provides us with assurance that we are fulfilling our obligations and maintaining a high level of service to both the Welsh government and Welsh taxpayers.
The NAO’s report into HMRC’s administration of WRIT in 2021 to 2022 is expected to be published in January 2023.
HMRC administers WRIT on behalf of the Welsh government, and as such is also accountable to the Senedd for our performance in doing so. As part of the implementation of WRIT, HMRC appointed an Additional Accounting Officer (AAO), who is available to give evidence to committees of the Senedd. The current AAO is Jonathan Athow, Director General for Customer Strategy and Tax Design.
Annex: Annual Business Intelligence Report 2021 to 2022
Customer contact – telephone
HMRC has a WRIT telephone route within the HMRC Personal Tax helpline. This gives customers generic pre-recorded WRIT messages prior to speaking to an HMRC Customer Advisor. These figures do not represent all calls by Welsh taxpayers to HMRC.
Customer contact – complaints
HMRC tracks all WRIT customer complaints to ensure they are processed within the HMRC customer service targets. These figures do not represent all customer complaints received from Welsh taxpayers.
HMRC has a number of WRIT related webpages that are hosted on GOV.UK and hits to these pages are monitored.