Paid in wrong tax year

davey4444

My employer had problems calculating my commission for the first 3 months of this year and only resolved it this month in time for the payroll, I now have written confirmation that I will receive monthly payments in the future. Now I have been paid my outstanding commission (approximately £5k) in one lump sum but of course now we're in the 2006-2007 tax year I believe that I would have been charged the higher rate tax on all of this.

I've recieved my P60 and it shows that my pay for the last tax year was just under £23k. If my company had been able to calculate my commission correctly in February and March then surely these would have been calculated at the basic tax rate since my total pay would be less than £31,400.

Do I have a right to claim that my commission for Feb and March should be more in my take-home amount because my company were unable to calculate the amounts in time?

Savvy_Sue

I think from my PAYE days that the tax is to be calculated according to the date on which it is paid to you, not the date on which it was DUE to you.

But it would be worth a call to your employer's tax office to double check this, and if I'm right you could then do a calculation of how much you'd lost, and ask to be reimbursed, but it will get complicated, because they'll have to tax that as well ...

Careful_ly

Unless you expect to earn over £37k in this tax year (including this bonus) this wont make any difference to how much tax you would pay over the two years concerned.
HTH

sarahlouise210

Savvy is correct - you must pay tax in the year the income was received. This month you will have paid some tax at 40% as when the figures were inputted by payroll the payroll computer will assume you will earn the same amount of money each month - next month (and each month after) it will become apparent that this is not the case and you will receive a refund of tax each month until you have paid the correct tax - you may see the refund in the form of just paying less tax each month than you would have done ordinarily. All will be well!

WHA

I'm afraid I must disagree -

Payment is treated as receieved on the earliest of

1) the actual date of payment and
2) the time when a person became entitled to receive the payment.
Therefore if the payment was contactually due to be paid in March but wasn't actually paid until April, then it is still taxable in March.

See the Revenue's Employment manuals: http://www.hmrc.gov.uk/manuals/eimanual/EIM42260.htm

There is an example in there which is very close to your circumstances:

"For example, an employee may be entitled to a payment of earnings on 31 March 2005 but actual payment may not be made until 12 April 2005. Receipt is deemed to take place on 31 March 2005 (applying the entitlement rule) and the earnings are therefore assessable in, and PAYE must be operated in, 2004/05.

Once the “received” and “payments” rules are triggered, assessment and PAYE consequences follow. It is not possible for employers or employees to rewrite history by repaying or “waiving” the right to receive earnings and claiming that tax consequences can be cancelled."

So, if you were contractually entitled to receive your commissions in the tax year to 5 April 2006, your employer should amend your payslips so that it is taxed in the tax year to 5 April 2006 - you are therefore quite right in asking them to do so and they have no grounds for refusing!

sarahlouise210

The above would only apply in a few cases where it was actually written into a contract when commission should be paid - this does not often happen. If this does not apply then the income is always assessable in the year it was received.