Advice needed on potential tax refund

brettleigh1980

Hi All,

I was looking to get some advice on a potential tax refund and thought this would be a good place to come.

I started working for my current employer in January 2008 and as part of my contract I am entitled to a 25% shift bonus.

This is going to sound really stupid but I didn't realise until last year that I hadn't been receiving this on top of my salary - I just assumed they were paying me correctly.

That in itself isn't the problem - they started the shift bonus once I'd bought it to their attention and backdated it to the start of my employment (was like I'd been putting it all in to savings so that was good).

The problem is that because this backdated correction was paid to me in one lump sum I got majorly taxed on it. Also, I think it will have affected my tax code for this year as they will be under the impression that my pay for last year was alot more than it actually was.

At the time I spoke to someone in HM Revenue and Customs and was told that I'd need to wait til the end of the tax year and then send them through a letter from my employer along with my P60 from last year and the year before and that they would assess the situation.

However, now that I have those pieces of documentation together I decided to call them again. This time the lady there point blank refused that I am entitled to anything.

I don't know much about how it all works but presumably being paid that lump sum (that should have been spread over 3 tax years) could potentially mean that I was overtaxed on it? And also that it may have affected my tax code following the lump sum?

Thanks in advance
Brett

jem16

brettleigh1980 wrote: »

I don't know much about how it all works but presumably being paid that lump sum (that should have been spread over 3 tax years) could potentially mean that I was overtaxed on it?

PAYE works on the basis of when the money was paid not what period it might have been for. Unfortunately there is nothing you can do about this. The money was paid to you last tax year and counted for last tax year.

If you want to post the figures we can check what HMRC are saying.

And also that it may have affected my tax code following the lump sum?

Your tax code isn't connected to how much you pay. It's based on your personal tax-free allowances so it won't have been affected.

Mikeyorks

As Jem has correctly pointed out - there's no impact on your code number this year from the manner in which the 'arrears' were paid.

However - the elaborated rule regarding tax (bold by HMRC) is :-

the rule is when a person becomes entitled to payment of earnings

........ and, in 99% of cases, that will co-incide with the date of payment. The obvious exceptions are awards under the Equal Pay and Minimum Wage Acts where the requirement is that tax is calculated back to when the pay should have been made.

Most 'arrears' of pay are generated by pay agreements which include some element of backdating. In those cases the 'entitlement' is created by the agreement - so the tax is correctly assessed when the 'arrears' are paid.

In your case - these are genuine arrears of pay and should have been taxed according to the year(s) in which the entitlement arose. This link alludes ..... but some of the specific detail has been removed (Freedom of Information) since last I looked several years ago :-

http://www.hmrc.gov.uk/manuals/eimanual/EIM02530.htm and, perhaps more relevant :-

http://www.hmrc.gov.uk/manuals/eimanual/EIM42290.htm

Post your P60 details (pay / tax / Code) for last year + the gross amount of the arrears (and how many years the arrears relate to) and someone will calculate if you've been disadvantaged by being taxed on the lump as opposed to apportionment?

But - if you have - not sure if the first port of call is back to your employer or with HMRC? I'm sure that was part of what has been removed.

John_Pierpoint

Have you done the sums for both tax and NI?
For example the standard rate of tax fell in April 2008 from 22% to 20%.
I think the company in honour owes you interest on the unpaid sum at say bank base rate (wow).
But how much have you actually lost by being paid the extra all in one year.

brettleigh1980

Thanks very much for your replies so far - really appreciate it.

I'm not entirely sure of the exact figures at the moment as I'm working away and don't have my P60 with me. I will post these tomorrow though

One thing I'm sure of though is that my total tax for last year was almost double what it was the year before :eek:

dori2o

A few things to ask yourself here.

Did the backdated earnings push you over the 40% tax band this year?

Are you a higher rate earner anyway?

Have you actually saved money as a consequence of paying NI at 1%?

It is possible for HMRC to re-evaluate the past 3 years by adjusting your pay to included the proportion of the lump sum which which relates to each of the years and recalculation the tax paid. It is seen normally when pensioners are given a lump sum payment when they have been receiving the wrong amount of pension.

If there is a signbificant loss that has arisen due to receiving this payment in one lump then you would need to contact your employer and ask them to send you a break down of exactly how the lump sum was made up, i.e how much was due for each of the tax years that payment was paid for.

Once you have this write to HMRC to explain the situation and they should reveiw the required tax years for you.

brettleigh1980

Apologies for the delay everyone but here are the figures :-

P60 to 5th April 2009 :-
Total Pay - 45357.94
Tax Code - 603L
Total Tax - 8767.20

P60 to 5th April 2010 :-
Total Pay - 63501.34
Tax Code - 647L
Total Tax - 15328.80

Lump Sum details :-
Pay Date - Sep 2009
Backdated to - Jan 2008
Total Pay - 18502.56
Total Tax - 6599.56
Actual backdated amount - 14171.54

Please let me know if you require any further details

Also, can I claim back some national insurance on the same grounds?

Mikeyorks

On those figures - sorry, but you haven't been disadvantaged by the arrears being paid as a consolidated sum.

• For 08-09 your personal allowance is £6035. The 20% tax rate tops out at £34800. So – anything above £40835 is chargeable at 40%.

• For 09-10 your personal allowance is £6475. The 20% tax rate tops out at £37400. So – anything above £43875 is chargeable at 40%.

As your pay for both those years pushes you into 40% without the 25% shift allowance ………… there is no point having the shift allowance lump sum (which you will have paid 40% on) re-profiled - as you will pay 40% in any event.

For 07-08 – the same will apply if (assuming a Code of 522?) your total income (without the 25% add back) exceeded £39825 – which is where the 40% band started that year.

I can’t really answer the NI part of your question …….. but I don’t think that can be re-profiled.

brettleigh1980

Not exactly what I wanted to hear, but at least now I actually know. I wish the tax office had explained my situation this clearly. Thanks very much for your help

PlutoinCapricorn

I have met many people with similar bonus problems: they worry about paying too much tax for the succeeding months as it looks as though they have had a big payrise!

The thing to do as others have said is to look at the P60 for the whole year in question: these things do sort themselves out.

You do need to find personal allowance amount and the bands and percentages for each year so you can work out how much tax you should have paid and see whether the P60s agree.

Mikeyorks

PlutoinCapricorn wrote: »

You do need to find personal allowance amount and the bands and percentages for each year so you can work out how much tax you should have paid and see whether the P60s agree.

The P60s - at least the 2 (out of 3) relevant ones posted .... are spot on. And I've given the PAs / relevant rates at post #8 ??