Senedd sets Welsh rates at 10% for 2022-23

For 2022-23 the Senedd set the Welsh rates of income tax at 10% across all bands, the National Audit Office has reported¹. The decision kept the total rates paid by taxpayers in Wales in line with UK rates: 20% at the basic rate, 40% at the higher rate and 45% at the additional rate¹.

The Wales Act 2014 gave the Senedd (Welsh Parliament) power to determine the rates, excluding the personal allowance, paid by Welsh taxpayers on all non-savings, non-dividend income, from 6 April 2017¹. Since April 2019 the UK government has reduced the UK basic, higher and additional income tax rates by 10 percentage points for Welsh taxpayers, and the Senedd has had the power to apply Welsh rates in addition¹. For each band, the rate paid is the sum of the reduced UK rate and the Welsh rate set for the year¹.

Source: National Audit Office analysis of data from the Welsh Government¹

HMRC has calculated that there were 1.4 million Welsh taxpayers in 2021-22, and Welsh income tax revenue in that year was £2.4bn¹. HMRC calculated the final outturn for 2021-22 as £2,384 million, against an estimate of £2,356 million published in July 2022, so the actual outturn was £28 million, or 1.2%, higher than originally estimated¹. HMRC has estimated Welsh income tax revenue for 2022-23 as £2,589 million, an increase of £205 million, or 8.6%, compared with the 2021-22 outturn; income tax for the whole of the UK increased by 8.9% in 2022-23¹. The costs of administering Welsh income tax in 2022-23 were £0.4 million¹.

The NAO concluded that the Welsh income tax revenue outturn for 2021-22 is fairly stated¹. HMRC largely based the outturn calculation on established tax liabilities, some £2,441 million¹. The report also records that HMRC and the Welsh Government discussed and agreed the methodology used to calculate the 2021-22 outturn for Welsh income tax at the Welsh Rates of Income Tax Board in May 2023¹.

Why it matters for households

The Welsh rates apply to people classed as Welsh taxpayers, which HMRC identifies by applying a flag in its systems indicating they are subject to Welsh income tax rates¹. Because the Welsh rate was set at 10% in every band for 2022-23, the total rates those taxpayers faced were the same as the UK rates¹. The rates are separate from National Insurance, which is not devolved, and from savings and dividend income, which the Welsh rates do not cover¹. The rates for 2022-23 applied from the start of that tax year; the figures reported here are the revenue outturn for 2021-22 and the estimate for 2022-23, not a change taking effect now¹.

What happens next

HMRC expects to publish the outturn for 2022-23 in its 2023-24 Annual Report and Accounts¹. The report also notes that, following the 2021-22 tax year, HMRC issued Annual Notification of Residency Reports to pension scheme administrators in January 2023, and that its most recent residency check, performed in August 2023, compared 3.0 million Welsh address records¹. In the Spring Budget 2023, HM Treasury gave HMRC an additional £47.2 million to improve its ability to manage tax debts, and since September 2022 HMRC has entered a new contract allowing it to place more debt with agencies for the same level of investment¹. HMRC introduced system changes in August 2020 designed to remove the need for it to manually update parliamentarians' records each year to record them as Welsh taxpayers¹.