7 years back pay - pushed me into higher rate tax (I am a basic rate taxpayer)

anotherday1

I guess this is a nice problem to have, but I have found out that I should have had a pay increment 7 years ago. For this reason I have been underpaid for the last 7 years. Luckily with the help of my union I have been able to get my employer to put this right and I will be paid my back pay as one lump sum at the end of this month in the new tax year.

Anyway, if I had been paid continually over the last 7 years then I would have been taxed at the basic rate of tax. But paying me in one hit will mean I will be taxed at the higher rate of tax. Hence, my income tax bill would be doubled from 20% to 40%!

I know this is a nice problem to have, but should my employer pay me extra to put me back in the position I should have been in if they had been paying me the correct amount for the last 7 years?

So my employer will be paying me so my gross payment has been put right, but they haven't put my net payment right!

I hope I have expressed myself clearly!

Do we have any employment law specialists in this Forum?

Thanks!

getmore4less

It's a tax issue, the NI will be lower, 2% rather than 12%.

Must be close to the 40% to get most of it taxed at 40%

nicechap

anotherday1 wrote: »

I guess this is a nice problem to have, but I have found out that I should have had a pay increment 7 years ago. For this reason I have been underpaid for the last 7 years. Luckily with the help of my union I have been able to get my employer to put this right and I will be paid my back pay as one lump sum at the end of this month in the new tax year.

Anyway, if I had been paid continually over the last 7 years then I would have been taxed at the basic rate of tax. But paying me in one hit will mean I will be taxed at the higher rate of tax. Hence, my income tax bill would be doubled from 20% to 40%!
A
I know this is a nice problem to have, but should my employer pay me extra to put me back in the position I should have been in if they had been paying me the correct amount for the last 7 years?

So my employer will be paying me so my gross payment has been put right, but they haven't put my net payment right!

I hope I have expressed myself clearly!

Do we have any employment law specialists in this Forum?

Thanks!

Short answer, no. The employment law specialists have been hounded out by trolls so you are left with people offering opinions based on their (often limited) life experiences.

Your union will have access to tax specialists and lawyers and would be your natural starting point given the help they’ve already given you. The union will also know whether the arguement you make is likely to work or not with your employer.

Although this month may take you into the 40% bracket, you will be assessed over the full year, so if your earnings including the lump sum are less than the yearly 40% bracket, you will get the overpaid tax back in next year’s tax code or you can ask for a direct payment.

anotherday1

Yes, I've always been just under the higher rate income tax band. This would be still the case with my missing increment.

I feel a little bit better that I would pay NIC's at 2% rather than 12%!

Initially I thought I would losing 62% of the backpay given pension contributions of 10% also (40%+12%+10%).

Q1) So will I lose 52% roughly given NIC's of 2% (40%+2%+10%)?

Q2) It still leaves the question whether an employer should put my net payment right and not just the gross pay?

Thanks!

anniecave

Income is always taxed based on when it's received, not when it relates to. That's not your employer's choice, that is tax law. The same scenario can apply to bonuses and redundancy payouts.


If you have 10% pension contributions then this goes into your pension, you don't lose it.

getmore4less

Increase you pension contribution this year to get the tax relief on all 40% income.

BoGoF

anniecave wrote: »

Income is always taxed based on when it's received, not when it relates to. That's not your employer's choice, that is tax law. The same scenario can apply to bonuses and redundancy payouts.


If you have 10% pension contributions then this goes into your pension, you don't lose it.

Not true if it is genuine arrears of pay - https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim02530

You need to obtain a breakdown of the arrears, i.e. what should have been paid in each tax year and HMRC will recalculate the position

Barny1979

Does your back pay also include interest?

Dox

anniecave wrote: »

Income is always taxed based on when it's received, not when it relates to. That's not your employer's choice, that is tax law.

Not so. Depends when the contractual entitlement to the payment arose.

anotherday1

Barny1979 wrote: »

Does your back pay also include interest?

They haven't mentioned interest, so I doubt it! It was hard enough getting them to agree to backdate my pay increment to the correct date!

Barny1979

anotherday1 wrote: »

They haven't mentioned interest, so I doubt it! It was hard enough getting them to agree to backdate my pay increment to the correct date!

Are you also having pension payment adjustments too, as if you should have been paid more, your pension contribution and your employer's contribution should have been higher.