Civil Service backdated pay award - lump sum or installments?

meatyfood

Hi, 

As the title says, I am a civil servant who is getting a pay award backdated from April 2024 and being payments beginning in Jan 2024. Total is £860. I'm not sure if I will get taxed more if I choose the lump sum option? I am on plan 2 for my undergraduate loan and pay a postgraduate loan too. My net pay monthly is £1861.54. I am not sure how to begin calculating each scenario to work out how my student loans/NI/tax would be impacted if I took a lump sum or payment in 3 sums. Tax code: 1257L/0.

Would massively appreciate any assistance getting started!

DE_612183

Do you mean payments starting jan 2025?

If there are three payments - what dates? if the dates are Jan, Feb & March - then there is no impact.

uknick

Wow, things have changed in the civil service.  We used to get pay awards that were 12 months late and would only ever get the backdated amount in one lump sum. 

silvercar

Plan 2 threshold is 27,295 and post grad is 21,000. So if your annual income is over those amounts you make repayments each month and can’t get anything refunded.

Divide by 12 for monthly amounts and compare to your pre-tax income. If you make payments each month for both loans, you won’t get anything back, but equally you repayments  out of your pay award will be the same in total whichever way it is paid. However if you are under the threshold at the moment for either loan, you are better off taking it in instalments to preserve the amount under the threshold that you won’t pay on. 

Example with rounded numbers for ease.

Say the threshold was 1100 a month and you earned 1000 a month with 600 back pay due. Take it over 3 months and you have 200 a month, increasing your monthly pay to 1200. You’ll pay X% of 100 (1200-1100) for 3 months. So X% of 300 altogether. If instead you took the 600 in a lump sum, you income for that month would be 1600, so you’d pay X% of 500 (1600-1100) which would be higher.

meatyfood

DE_612183 said:

Do you mean payments starting jan 2025?

If there are three payments - what dates? if the dates are Jan, Feb & March - then there is no impact.

I do mean Jan 2025 my mistake. It's Jan, Feb March. Thank you

saajan_12

meatyfood said:

DE_612183 said:

Do you mean payments starting jan 2025?

If there are three payments - what dates? if the dates are Jan, Feb & March - then there is no impact.

I do mean Jan 2025 my mistake. It's Jan, Feb March. Thank you

Ok so it'll all come in this tax year, so no impact on income tax. 
There may be a small impact on NI or student loans - need to know your total income to determine that. 

When would the lump sum be - if all in Jan, you would gain some interest which might offset things a bit.