“…the easiest way to make the £500 NHS payment tax free is for the SNP to top it up. Nicola Sturgeon’s attempt to politicise this thank you payment & create a grievance out of thin air has backfired. She needs to apologise and top up this payment now” – Douglas Ross on Twitter, December 1, 2020.


Any tax paid from topping up the NHS bonus is grabbed by the UK Treasury for two years. And the Scottish Government is banned from granting tax relief on the bonus. While the Chancellor is freezing public sector wages, Scotland is saying “thank you” to its NHS heroes.


On St Andrew’s Day, the First Minister used her speech to the online SNP conference to announce that the Scottish Government was awarding every NHS and social care worker a £500 bonus. She explained this was a “thank you” for all the effort these courageous workers had put in during the pandemic.

The bonus will be paid to some 391,000 doctors, nurses, porters, care home and hospice staff, and other frontline health workers (including part-timers), at a cost of circa £180m to the Scottish taxpayer. The FM went on to appeal to Boris Johnson and the Conservative government to exempt these bonus payments from taxation.

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READ MORE: Treasury rejects Nicola Sturgeon's plea to make £500 Covid bonus for NHS staff tax free

The FM’s proposal for tax relief was immediately shot down by the UK Government. A spokesperson for the UK Treasury replied: "The income tax on these payments is paid to Scotland, not Westminster – and the Scottish Government has the powers and funding to gross up the payment if it wishes."

In addition, spokespersons for the various UK political parties attacked the bonus and tax relief idea. Richard Leonard, the Scottish Labour leader, said: “This sum announced by Nicola Sturgeon will not make up for the years of pay restraint and austerity that staff in these sectors have had imposed on them by Tory and SNP ministers.”


Under the 2016 Fiscal Framework, income tax in Scotland is only partially devolved. The Scottish Parliament is able to vary rates and bands for Scottish income taxpayers on earned income only. Income tax paid on savings and dividend income is still set by the UK Treasury. Also, all personal allowances and reliefs, plus the rates and bands for savings and dividend income, remain reserved to the UK Parliament. So only the UK Government can exempt income tax being paid on bonuses offered by the Scottish Government. From this point of view, the Scottish Government is correct to say that any relief on the proposed £500 bonus is solely at the discretion of Chancellor Rishi Sunak.


However, the same Fiscal Framework ensures that any additional income tax paid by NHS or care workers on their bonus will flow directly to the devolved Scottish budget. In this, the UK Treasury is correct. So why not simply increase the proposed bonus so the net take-home for each NHS or care worker nets to £500? There are several reasons why this does not work.

First, though the Scottish Government would pay out the bonuses this financial year (2020-21), the extra income tax revenues go first to the UK Treasury, the tax collection point. This money will be transferred to the Scottish Government only in 2023-24 – two years from now. This is because the Treasury only pays out to the Scottish Government the income tax receipts forecast in the given year, in this case 2020-21. Reconciliations between the forecast and the actual take place in arears.

The National: Tory Chancellor Rishi SunakTory Chancellor Rishi Sunak

READ MORE: Brass-necked Tories demand Scots thank them for SNP's £500 NHS payment

As a result, the Scottish Government will have to fund any bonuses out of reserves and wait for the Treasury to repay in the future. It would make more sense (and be more just) for the £500 bonus to be tax exempt, rather than increase the bonus and tie up the additional Scottish reserves for two wasted years at the UK Treasury.


The second problem concerns National Insurance Contributions (NICs). A basic rate taxpayer receiving the £500 bonus will take home around £340 after tax and NICs. Of these deductions, £100 income tax goes (eventually) to the Scottish Government and £60 of NICs goes to the UK Treasury. Even if the bonuses were exempt from income tax, the basic rate payer would only take home £440. For an NHS or care worker to receive the full £500, the Treasury has to remit the NIC contribution as well. The Treasury cannot wash its hands and pass the buck entirely to the Scottish Government because some of the proposed bonus ends up with the Chancellor.


There are reasons why bonuses are taxed. If they were not, everyone would demand to be paid in bonuses rather than regular pay. One obvious problem with the FM’s proposal is that it creates a possibly unwelcome precedent. Also, exempting bonuses from taxation benefits higher-rate taxpayers more than basic payers. For these reasons, some might query exempting any bonuses from being taxed – regardless of how much the work done by NHS and care workers deserved to be rewarded.

If Ross is so worried about tax relief on bonuses for NHS staff and care workers, the alternative is a proper wage increase. But the Tory Chancellor has just announced a public sector wage freeze in England. This eliminates normal Barnett consequentials, making it difficult for the Scottish Government to raise NHS salaries here without raising Scottish taxes.

However, the pandemic emergency has led the Treasury to change the way Barnett consequentials are calculated. Scotland’s Barnett share has been uncoupled from specific English departmental spending increases. As a result, the Scottish Government has greater flexibility to allocate funding in the ways it deems most appropriate for Scotland. This flexibility could allow the Scottish Government to ignore the public sector pay freeze south of the Border.


False. Instead of playing Scrooge, Boris should agree tax relief on the £500.

The National: National Fact Check False