Payroll for Scottish and Welsh employees

An employer never decides whether an employee pays Scottish or Welsh income tax. HMRC decides from the employee’s main place of residence and tells the employer by issuing a tax code with an S or C prefix; the employer’s job is to operate that code exactly, report a correct address on the Full Payment Submission and apply any new code before the next payday. Keeping the address up to date with HMRC is the employee’s responsibility.

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What do the S and C prefixes tell payroll software?

HMRC’s guide to employees’ tax codes says an S code deducts tax using the Scottish bands for an employee whose main home is in Scotland, and a C code uses the Welsh bands for an employee whose main home is in Wales. The prefix affects only wages and pensions, the non savings, non dividend income that runs through PAYE. The number and suffix work exactly as they do elsewhere, so S1257L gives the standard £12,570 allowance at Scottish rates.

For 2026 to 2027 the Scottish bands are starter 19%, basic 20%, intermediate 21%, higher 42%, advanced 45% and top 48%. The Welsh rates for 2026 to 2027 produce the same bands and rates as England and Northern Ireland, so a C code and the equivalent code without a prefix give the same deduction. The C still has to be operated: PAYE100040 explains that the share of tax attributed to the Welsh rates goes to the Welsh Government, and HMRC uses the status on its own records to make that split.

Situation	Scottish code	Welsh code
No allowance, or allowance used elsewhere	S0T	C0T
Second job taxed at the basic rate	SBR	CBR
Second job at the next band up	SD0 (intermediate 21%)	CD0 (higher)
Second job at higher bands	SD1 (higher), SD2 (advanced), SD3 (top)	CD1 (additional)

Code NT never carries a prefix; PAYE13100 confirms it is used unchanged for the whole UK. For the basics of how codes are built, see PAYE tax codes explained.

Who decides whether an employee is a Scottish or Welsh taxpayer?

The tests are in section 80D of the Scotland Act 1998 and section 116E of the Government of Wales Act 2006: the employee must be UK resident and either have a close connection with Scotland or Wales through their main place of residence, pass a day counting test, or be a parliamentarian for that country. HMRC applies those tests on the National PAYE Service and sets a Scottish or Welsh taxpayer status flag, which is what generates the prefix (PAYE100035 and PAYE100040).

The location of the employer is irrelevant. PAYE100035 states that the location of an employer or trustee is not relevant; it is the individual’s main place of residence that counts. HMRC’s own example in STTG4300 is Sharon, who lives in Carlisle and works for a company in Dumfries: she is not a Scottish taxpayer. A business in Edinburgh can therefore have staff on English codes, and a Cardiff office can have staff without a C. The detailed tests are covered in who is a Scottish taxpayer and who is a Welsh taxpayer.

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Who must update the employee’s address?

The employee. GOV.UK tells individuals that they must tell HMRC their new address if they move to or from Scotland, warning that they may pay tax at the wrong rate if they do not, and that they should update their address with HMRC if they move to or from Wales. HMRC’s change of address service runs through the personal tax account and can only be used once the person has moved.

The employer has a supporting role. HMRC’s guidance on payroll information says the employee’s address should be included on the Full Payment Submission for a new employee, where the National Insurance number is not known, or where the address has changed. It warns that an incorrect postcode could result in the employee’s address being changed on HMRC’s systems. HMRC’s 2025 annual report on Scottish Income Tax confirms that its address data comes from individuals, employers and other government departments.

What the employer should not do is add or remove a prefix because of the address on file. HMRC’s communications to employers focus on applying the S codes HMRC issues, and its guide to employees’ tax codes tells employers to update the payroll record with the new code HMRC sends. If an employee says they have moved, the right response is to report the new address on the next submission and to remind the employee to update HMRC directly.

What happens when an employee moves mid year?

Scottish and Welsh taxpayer status apply to a whole tax year. An employee who moves into Scotland and whose main place of residence is in Scotland for more of the year than anywhere else is a Scottish taxpayer for the entire year, including the months before the move. GOV.UK says the new rate is backdated to 6 April and the tax taken from wages or pension is adjusted automatically so the right amount is paid across the year.

In payroll terms, HMRC sends a new code, and the guide to employees’ tax codes says to update the payroll record as soon as possible and before the employee is next paid. On a cumulative code, the software recalculates tax from 6 April at the new rates, so the next payslip carries any catch up or refund. A code marked week 1 or month 1 does not look back, so any difference is left for HMRC’s end of year reconciliation. If the new code arrives too late to use in the tax year, the guidance is to use it in the new tax year. See how cumulative PAYE works and week 1 and month 1 tax codes.

Illustration only. Priya earns £36,000 and moves from Manchester to Glasgow in June. Her main place of residence is in Scotland for most of the year, so HMRC issues S1257L. On £23,430 of taxable pay, the Scottish bands give tax of £4,711.07 for the year against £4,686.00 at the rates for England. Once the S code is entered, the cumulative calculation recovers the £25.07 difference over her remaining pay periods. A move out of Scotland in June would work the other way, with a small refund.

How the move date decides status is explained in moving to or from Scotland mid year.

What about new starters, leavers and pensioners?

HMRC’s P9X for 2026 tells employers to identify the correct tax code for each employee, including the correct prefix such as S or C, when preparing payroll records. A new starter’s P45 carries the prefix from the previous job. Where there is no P45, the emergency code is 1257L for all employees, and PAYE100035 confirms the UK emergency code process is used for Scottish taxpayers too; the prefix follows when HMRC sends a code for the employee.

For payments made after a P45 has been issued, the P9X says tax must be deducted using 0T, S0T for employees who had an S prefix, or C0T for employees who had a C prefix, on a non cumulative basis. Pension providers receive S and C codes in the same way as employers.

Does National Insurance change for Scottish or Welsh employees?

No. HMRC publishes one set of Class 1 rates and thresholds. For 2026 to 2027 employees pay 8% between the Primary Threshold of £1,048 a month and the Upper Earnings Limit of £4,189 a month, and 2% above that, while employers pay 15%. Because the Scottish 42% rate starts at £43,663 but the Upper Earnings Limit is broadly aligned with the UK higher rate threshold of £50,270, a Scottish employee in that range pays 42% tax plus 8% National Insurance on each extra pound. Payroll teams often field questions about this; see marginal tax rates for Scottish taxpayers.

What mistakes do employers make?

Dropping the prefix. HMRC’s 2025 report says a minority of employers, between 1 and 2%, omit the S and operate a UK code, often because of a software error or missing update. The error rate fell from around 4% in 2019 to 2020 to around 1.26% in April 2024, and HMRC reissues codes to employers that get it wrong.
Adding or removing an S or C from the employee’s postcode instead of waiting for HMRC’s code.
Treating C codes as optional because the Welsh rates currently match England.
Carrying a week 1 or month 1 marker into the new tax year, which the P9X says not to do.
Keying a wrong postcode on the FPS, which can change the employee’s address on HMRC’s records.
Telling an employee that payroll can change their status. Only HMRC can, once the employee updates their address.

HMRC’s report notes that employees affected by a missing prefix are still treated as Scottish taxpayers and any under or overpayment is corrected at year end, so the cost of a payroll error usually falls on the employee as an unexpected bill or refund.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.