Tax on backdated pay award

AtishooAtishoo

Apologies if this has been covered - it’s my first post and I have no knowledge of the tax system! I’m getting a backdated pay award from my previous employer and I’ve been told it’s my responsibility to pay any tax and NI contributions pertaining to the award. I’m unclear whether any tax/NI due on the amount relates to the period I should have been getting the extra pay or the year I receive the payment. It makes a difference to me as I’m currently not working and therefore wouldn’t have to pay tax this year. Hope this makes sense! 

Jeremy535897

I think they are wrong. See the last item of this on GOV.UK:
https://www.gov.uk/employee-leaving

[Deleted User]

Jeremy535897 said:

I think they are wrong. See the last item of this on GOV.UK:
https://www.gov.uk/employee-leaving

They are wrong - reckon the employer has decided that this situation belongs in the ‘too hard’ box. Under what circumstances could this employee be responsible for paying tax and NIC on salary received from an employer? 

I would go back to them and indicate that you intend to approach HMRC - doubt that they would want the attention.

xylophone

https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye70023

AtishooAtishoo

Thanks for replies to date. This is the wording: Settlement of backpay: xxxxxxx will be paid. This will be subject to deductions for tax and NI and will be pensionable for employees currently participating in the LGPS. Please note that if you are no longer employed by xxxxxxx, you are responsible for the payment of any tax and NI contributions.
I assumed the onus is on me as an ex employee to make the payment. But still not sure if it’s this tax year or previous?

[Deleted User]

AtishooAtishoo said:

Thanks for replies to date. This is the look wording: Settlement of backpay: xxxxxxx will be paid. This will be subject to deductions for tax and NI and will be pensionable for employees currently participating in the LGPS. Please note that if you are no longer employed by xxxxxxx, you are responsible for the payment of any tax and NI contributions.
I assumed the onus is on me as an ex employee to make the payment. But still not sure if it’s this tax year or previous?

I think that you will have to contact them to clarify.

xylophone

https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye70023
Legally, an employee’s tax liability on a payment of arrears arises in the tax year that the employee was originally entitled to be paid the extra amounts, not in the year that payments are eventually made.

https://www.gov.uk/employee-leaving

Paying an employee after giving them a P45

If you have to pay an employee after they leave (including someone you’re giving a taxable redundancy payment over £30,000):

• use tax code 0T on a ‘week 1’ or ‘month 1’ basis (use the code S0T if they’re taxed at the Scottish rate or C0T if they’re taxed at the Welsh rate)
• deduct National Insurance (unless it’s a redundancy payment) and any student loan repayments as normal - but if it’s an ‘irregular’ payment like accrued holiday pay or an unexpected bonus, treat it as a weekly payment
• report the payment and deductions in your next FPS, using the employee’s original ‘Date of leaving’ and payroll ID, and set the ‘Payment after leaving’ indicator
• give the employee written confirmation of the payment showing the gross amount and deductions
• add the additional payment in the ‘Year to date’ field if the payment is in the same tax year

The payment should be the only one in the ‘Year to date’ field if it’s being paid in the next tax year.

As far as I can see, the ex employer must deduct tax and NI - it is then up to the ex employee to contact HMRC concerning any adjustment that may be needed because he has paid too much or too little tax in the tax year in question.