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?