On 12 March 2018, I announced that the Ministry of Defence (MOD) would be looking to mitigate the impact of income tax rises in Scotland affecting thousands of armed forces personnel in Scotland. New income tax bands and increased tax levels for tax year 2018-19, as compared to the rest of the UK, will result in the majority of military personnel living in Scotland, those earning more than £26,000 per annum, paying more tax this year by comparison to their counterparts living in the rest of the UK.
It has been decided that for this tax year the MOD will make a financial mitigation payment to all those regular service personnel negatively impacted by Scottish tax by £12 a year (or £1 a month) or higher. However, it has also been decided the amount of mitigation provided will be capped at £1,500. The financial mitigation payment will be paid retrospectively after the end of the tax year. It will be grossed up to ensure that when income tax and national insurance deductions are made the value of the payment closely matches the difference in tax experienced up to the £1,500 cap.
The MOD will continue to review the situation and decide each tax year whether the impact on UK armed forces warrants an offer of financial mitigation to support service personnel in Scotland.
It is estimated that these payments will be made to up to 8,000 regular service personnel and will cost the MOD in the region of £4 million in financial year 2019-20.