Tax on backdate pay

pm13

Hi All,

I have been told that I will be receiving a pay rise starting in my May pay and that it will be backdated to Jan 1st.

I currently earn £24000 so £2000 per month.
Pay rise will raise that to £29000
Backdated pay total is £20,000 (4 x £5,000)

So in theory I can receive tax/ni/student loans on £22000 for the month of May. Does that mean that I will be put into the higher tax band automatically? And how much would I receive post deductions?

chrisbur

pm13 wrote: »

Hi All,

I have been told that I will be receiving a pay rise starting in my May pay and that it will be backdated to Jan 1st.

I currently earn £24000 so £2000 per month.
Pay rise will raise that to £29000
Backdated pay total is £20,000 (4 x £5,000)

So in theory I can receive tax/ni/student loans on £22000 for the month of May. Does that mean that I will be put into the higher tax band automatically? And how much would I receive post deductions?

I am a little confused. You say that your salary has gone from 24000 to 29000 an increase of 5000 per year, and that it will be backdated to Jan 1st and paid in May which suggests that you will get 4 months backpay, but you seem to have worked out 4 years back pay.
Or am I mis-reading something?

scottishblondie

Indeed, I think the OP has made a mistake in their figures! Either that or they're getting a very generous payrise

As I work it out your back pay is going to be £1666.67, plus your regular pay (with the payrise) will give you £4083.34. On a the PAYE system this will push you into the higher tax bracket, so you will pay more tax for the month. However, the overpayment should return to you in dribs and drabs over the rest of the year.

This is unless of course there is some way for your payroll people to backdate the tax into the appropriate months as well? TBH I don't know if that's even remotely possible - I'm good with figures but I'm not all that up on backdated pay!

CLAPTON

assuming you were paid 2,000 in april
and 4083 in may
then that means you have earned 6,083 in the two months

so you get 7475 x 2 /12 tax free (i.e. 1245)
and then can earn up to another 35000 x2 /12 (i.e. 5833) at 20 % tax

so you will not pay any 40% tax

pm13

chrisbur wrote: »

I am a little confused. You say that your salary has gone from 24000 to 29000 an increase of 5000 per year, and that it will be backdated to Jan 1st and paid in May which suggests that you will get 4 months backpay, but you seem to have worked out 4 years back pay.
Or am I mis-reading something?

I did mis-type that apologies!

I thought that the 7475 was the first 7475 of your pay and then anything else up to 35000 is in the 20% band?

CLAPTON

yes, you have a tax free allowance of 7475 and then the next 35,000 is charged at 20% and then at 40%; the allowances are however given on a month by month basis

pm13

CLAPTON wrote: »

yes, you have a tax free allowance of 7475 and then the next 35,000 is charged at 20% and then at 40%; the allowances are however given on a month by month basis

That's good to know Hopefully I will get a bit more from my backdated pay than I thought.