Owed £5000 from 2014, can I add this as income for 2015 or 2016?
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smjxm09
Posts: 663 Forumite
Been advised today that I am owned over £5000 as I was paid below the legal minimum wage in 2014 due to me paying too much into an AVC using smart pensions before I left. The payment will be subject to NI and tax.
For the last 2 financial years I have had no income apart from interest on savings and have not been a tax payer as I deferred a company pension but now I am taking it and just paying a little income tax again.
Will I be taxed and pay NI for 2014 or 2017/18? More importantly as this was an error made in 2014 that has only just been spotted by my old company can I use this £5000 to be credited as income for either 2015 or 2016?
For the last 2 financial years I have had no income apart from interest on savings and have not been a tax payer as I deferred a company pension but now I am taking it and just paying a little income tax again.
Will I be taxed and pay NI for 2014 or 2017/18? More importantly as this was an error made in 2014 that has only just been spotted by my old company can I use this £5000 to be credited as income for either 2015 or 2016?
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Comments
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Your employer should allocate the payment to the tax year or years when you were originally entitled to payment.
Based on similar queries on here I get the impression that not a lot of employers know that so it seems very possible that your employer will treat the payment as a Payment After Leaving for the current year using code 0T on a month 1 basis.
If that happens the tax on a payment of £5000 will be in the region of (2790 at 20% plus 2210 at 40%) £1442.
I am not so confident on National Insurance but it tends to follow similar rules. If so, that will be about (3070 at12% plus 1250 at 2%) £393.40.
It would probably be best if you can talk to your employer before payment to see how they intend to deal with the tax and NI and , if necessary, try to persuade them to follow the correct procedure. Once the payment has been made its more likely that you will have to ask HMRC to sort it out and, I am afraid, almost certain you will have to wait until after 5 April 2018 when the tax year has ended.
Where Tax and National Insurance are different is that when a payment crosses the basic rate threshold tax goes up from 20% to 40% but NI goes down from 12% to 2% so my guess would be that you will overpay tax of (2210 at [40%-20%]) £442.00 and underpay NI of (1250 at[12%-2%]) £125.00 meaning a net repayment of £317.00.
https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim422900 -
Thank you for your reply but I am a little confused why any of it would be taxed at 40%. Is it because it would by viewed as possibly a one month payment out of a possible 12 (£5000 X 12 =£60,000) when it is a one off? My taxable pension is around £14800 so this would make my income before savings interest £19800.
The other fly in the ointment is that at the moment all my interest from savings is tax free as combined pension and savings interest is below £17500 but this one off payment will tax my savings.
Also as I have retired would I actually pay national insurance but I guess it would be viewed as a deferred wage?
I take it that this £5000 owed to me could not be put into the 2015/2016 tax year as I earned no income that year so I was thinking I would pay no tax.0 -
Just "retired" or "over state pension age" ? Very important distinction with regards to NI. The payment is either taxable in the year it was due or the current tax year, you are not able to put it to a year of your choosing.0
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Thanks for the reply. I am below the state retirement age but a company pensioner so you have answered that question nicely.
Just a shame that my old company did not spot its mistake either last year or the year before as it has cost me around £1500 in stoppages.
Just a further thought if my company paid this money in the current tax year would it not be below the threshold for National Insurance as employment related income would be just this £50000 -
NI is on a per payment / pay period basis and not annually like tax.0
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Thank you for taking the time and giving me your thoughts. So if my company paid the money owed in say lowish monthly installments I could avoid NI if the payments were below the monthly threshold. I doubt my company would do this but I could ask.0
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