Hammered for tax on pay arrears

Dr_Wu

Hi

I work for the NHS and pay my tax via PAYE.

I recently won a grading appeal which effectively means that I proved my employer had been underpaying me for the last 5 years.

This week I received a several thousand pound pay arrears covering what I should have been paid since 2005.

Unfortunately because the money all came at once, I have been absolutely hammered for tax because it takes me into the 40% bracket.

If the money had been paid as it should have been over the last 5 years then it would have been taxed at the 20% rate and I would have paid much less tax.

Has anyone heard of this problem before, and perhaps more importantly do you know if there is anything I can do to recoup what I've lost which remember is entirely down to my employer not putting me onto the correct grade in the first place?

Thanks in advance

ceeforcat

Provide some figures and we'll see if any may be due back over the rest of the tax year.

Dr_Wu

ceeforcat wrote: »

Provide some figures and we'll see if any may be due back over the rest of the tax year.

Of course....

Salary: 45K
Arrears: £7592
Total Pay this month: £11641
Tax this month: £3347....eeekk!
Taxable pay this year: £17.5K
Tax Code: 653L

hope that helps, many thanks for your time

Mikeyorks

Dr_Wu wrote: »

I recently won a grading appeal which effectively means that I proved my employer had been underpaying me for the last 5 years.

As a consequence of the appeal when did you become entitled to payment of the extra? As it is that which determines when tax should be charged.

If the entitlement is created by the appeal determination - then I suspect the way it has been done is correct ie it is merely back dated pay. But - if the appeal determines you have genuine arrears of pay back to 2005 then (as determinations under the Equal Pay / Minimum Wage Acts) it should have been re-profiled back to the appropriate years.

Your HR Dept should be able to help with the analysis above - I suspect the NHS is (or should be) fairly au fait with this sort of issue. Indeed the NHS rates a mention under 'Large employers' here - the penultimate para may also be of relevance if the entitlement date does stretch back to 2005? :-

http://www.hmrc.gov.uk/manuals/pommanual/PAYE70023.htm

Dr_Wu

Mikeyorks wrote: »

As a consequence of the appeal when did you become entitled to payment of the extra? As it is that which determines when tax should be charged.

If the entitlement is created by the appeal determination - then I suspect the way it has been done is correct ie it is merely back dated pay. But - if the appeal determines you have genuine arrears of pay back to 2005 then (as determinations under the Equal Pay / Minimum Wage Acts) it should have been re-profiled back to the appropriate years.

Your HR Dept should be able to help with the analysis above - I suspect the NHS is (or should be) fairly au fait with this sort of issue. Indeed the NHS rates a mention under 'Large employers' here - the penultimate para may also be of relevance if the entitlement date does stretch back to 2005? :-

http://www.hmrc.gov.uk/manuals/pommanual/PAYE70023.htm

thanks a million, that is hugely useful!

:T

Dr_Wu

jimmo wrote: »

You might also want to take a look here
http://www.hmrc.gov.uk/manuals/eimanual/EIM42290.htm
and here
http://www.hmrc.gov.uk/manuals/eimanual/eim42292.htm
　

again, thanks so much for that, really appreciated.

Mikeyorks

It might be worth a glance at this very recent thread? Tentatively similar to yours at the onset ......... but covers some of the detail :-

https://forums.moneysavingexpert.com/discussion/2540081

Dr_Wu

the more I read, the more I become convinced that this all hangs on the interpretation of one word...."entitlement"

Given that the fact I won the appeal that I should have been on a higher grade in 2005 I hope I might be okay on this one, i.e. I was entitled to the correct salary in 2005. Can't see how they could argue otherwise.

I never fail to be gobsmacked at how selfless people can be with their time and effort to help on these forums. Thanks again chaps. :T

ceeforcat

O.K. - while your arguments as backed up by jimmo and mikeYorks are sound, i don't think you will get anywhere fast on this one. As you know all NHS salaries have been reviewed lately on the implementation of Agenda for Change - all back payments were treated in exactly the same manner. Some good news though - you have paid NIC at 1% rate on this backpay when it would have been charged at 8.4% and 9.4% (I assume you are in the NHS pension scheme) - so a bit of consolation there.

Mikeyorks

Dr_Wu wrote: »

, i.e. I was entitled to the correct salary in 2005. Can't see how they could argue otherwise.

As ceeforcat correctly says - you need to be cautious with that. It's less usual than it used to be - but public sector salaries often used to be reviewed in one year, with the award stretching back into the previous tax year.

The unequivocal tax treatment is that it is the review which creates the entitlement ......... therefore any back pay is not construed as 'arrears' and is correctly taxed when the lump sum is paid.