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Where Taxpayers and Advisers Meet

backdated pay from closed tax years

Tazkia
Posts: 3
Joined: Mon Mar 05, 2018 9:48 pm

backdated pay from closed tax years

Postby Tazkia » Mon Mar 05, 2018 10:12 pm

I work for a large organisation and pay tax through PAYE. My wages annually are around 38000, so all the tax I pay is basic rate.
However I am about to be paid a lump sum from my employers, which they have agreed to pay relating to allowances and entitlements that should have been paid to me, from April 2010 to April 2016.They have admitted liability and this will leave me paying 40% tax on nearly all the back payment.
Whereas, if I had been paid this when I earned the funds, then I would have had 000's each year in available tax allowances without paying any of the 40% tax.
How can I get the use of my tax allowances from those relevant years, as I will be subject to PAYE and pay 40% tax on most of the monies owed?

My understanding is that I only have to pay the tax that is due when I would have earned the money and not when they have decided to make the payment

PAYE states the following, if they are not going to adjust the PAYE that i'll be deducted:
''Employer deducts tax in the current tax year
Some employers will not contact you to agree a settlement because they have paid the arrears as one lump sum in the current tax year and deducted PAYE. This may give rise to higher rate liability on employees who are basic rate taxpayers.
If an employee contacts you before the end of the tax year claiming to have paid too much tax on the arrears and asking that the arrears are taxed on the correct basis you should
• Set the Inhibit Automatic Reconciliation signal so that the liability can be reviewed at the end of the year
• Make a Contact History note ‘Inhibit Automatic Reconciliation signal set arrears of pay case’
Tell the customer that the matter cannot be reviewed until the end of the year but their record has been flagged for an automatic review at the earliest opportunity.''
Any ideas please?

RMC
Posts: 431
Joined: Wed Aug 06, 2008 3:35 pm

Re: backdated pay from closed tax years

Postby RMC » Tue Mar 06, 2018 10:59 am

Assuming that you were resident and domiciled in the UK both in the year the money was earned and in the year of receipt, the tax liability arises in the year or receipt.

bd6759
Posts: 3076
Joined: Sat Feb 01, 2014 3:26 pm

Re: backdated pay from closed tax years

Postby bd6759 » Wed Mar 07, 2018 11:48 pm

Assuming that you were resident and domiciled in the UK both in the year the money was earned and in the year of receipt, the tax liability arises in the year or receipt.
That is not correct. If the emplpoyee was entitled to the earnings in an earlier year, then it is taxable in that earlier year.

RMC
Posts: 431
Joined: Wed Aug 06, 2008 3:35 pm

Re: backdated pay from closed tax years

Postby RMC » Thu Mar 08, 2018 12:27 pm

Please see
https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim42202

SteLacca
Posts: 439
Joined: Fri Aug 07, 2015 2:17 pm

Re: backdated pay from closed tax years

Postby SteLacca » Thu Mar 08, 2018 2:50 pm

Please see ITEPA 2003 s.9 and s.16

bd6759
Posts: 3076
Joined: Sat Feb 01, 2014 3:26 pm

Re: backdated pay from closed tax years

Postby bd6759 » Thu Mar 08, 2018 6:49 pm

EIM42202 has nothing to do with arrears of pay.

The employee was entitled to the pay in the year it was due. Paying it late does not chnage that.

Please see
https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim02530

Tazkia
Posts: 3
Joined: Mon Mar 05, 2018 9:48 pm

Re: backdated pay from closed tax years

Postby Tazkia » Tue Mar 27, 2018 11:40 pm

Please see ITEPA 2003 s.9 and s.16
Excellent, thank you for your help, as long as I can get the records together, seems like I just need to write to the HMRC

Tazkia
Posts: 3
Joined: Mon Mar 05, 2018 9:48 pm

Re: backdated pay from closed tax years

Postby Tazkia » Tue Mar 27, 2018 11:42 pm

EIM42202 has nothing to do with arrears of pay.

The employee was entitled to the pay in the year it was due. Paying it late does not chnage that.

Please see
https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim02530
Many thanks for the good reference guide you sent, some of the years this relates to is from 2010 onwards, not sure if they’ll let me claim that far back! 🤞🤞🤞

nigeasp
Posts: 1
Joined: Thu Nov 01, 2018 9:53 pm

Re: backdated pay from closed tax years

Postby nigeasp » Thu Nov 01, 2018 10:20 pm

Hi Tazkia,Just wondering what your outcome was as i am in the exact position you were in.
Backdated payments due to HR mistake and now i'm in the higher tax bracket due to them not offsetting my tax over 3 years and paying me with a lump sum.
HMRC have asked for information on salary adjustments but just wondering if you eventually got your problem resolved and what you had to do.
Any info would be appreciated,thanks Nige.


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