Salary arrears paid in bulk and tax implications

Savy2013

Hello,

I really hope someone can help me.


My apologies if I have posted this in the incorrect category.

My employer had made an error and I was placed in the incorrect pay scale for about 3 years.

after raising this over the years, the employer agreed that they had made an error. Then, in February they changed my pay grade and paid me the arrears in bulk without any warning. They have taxed me for everything which is fine.

However,  this bulk payment now takes me slightly over the £50000 threshold for this year.

I contacted HMRC who weren’t very helpful. They said that although these are arrears, as they were paid this year, I must pay 40% for whatever earnings I go over the threshold of £50,000. This means my next salaries until April will be taxed at 40%.

Has anyone had a similar experience? 

Thank you in advance.

Flugelhorn

ask your employer to pay  interest / compensation over the last 3 years - hopefully that will make up for the bit of extra tax - you can probably work out how much you would be looking for 20% of the excess over 50K

eskbanker

Savy2013 said:

However,  this bulk payment now takes me slightly over the £50000 threshold for this year.

I contacted HMRC who weren’t very helpful. They said that although these are arrears, as they were paid this year, I must pay 40% for whatever earnings I go over the threshold of £50,000. This means my next salaries until April will be taxed at 40%.

How much will you earn above £50,270?  As HMRC have advised, it's only that amount that should actually be taxed at 40%, or do you have other taxable income?

Hoenir

Savy2013 said:

I contacted HMRC who weren’t very helpful. They said that although these are arrears, as they were paid this year, I must pay 40% for whatever earnings I go over the threshold of £50,000. This means my next salaries until April will be taxed at 40%.

PAYE70023 - PAYE operation: aspects of PAYE operation - employer: payment of arrears of pay for closed tax years

https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye70023#:~:text=Arrears of pay are earnings,arrears of pay at EIM02530.

Onus is on your employer. 

TheSpectator

Once you get to the end of the tax year you can resolve it If you have 40% tax. You will need a breakdown of the arrears payment into the relevant tax year they should have been paid. HMRC will then recalculate for all affected years

molerat

Hoenir said:

Savy2013 said:

I contacted HMRC who weren’t very helpful. They said that although these are arrears, as they were paid this year, I must pay 40% for whatever earnings I go over the threshold of £50,000. This means my next salaries until April will be taxed at 40%.

PAYE70023 - PAYE operation: aspects of PAYE operation - employer: payment of arrears of pay for closed tax years

https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye70023#:~:text=Arrears of pay are earnings,arrears of pay at EIM02530.

Onus is on your employer. 

The manual does not say that at all, it states the employer can or may.  As with all things tax the onus is on the employee and the manual has details of employee contact which the HMRC advisor already contacted should have followed.  So OP needs to get back on to HMRC.

saajan_12

What are the actual numbers involved - how much should you have earned this year at the correct higher pay scale, and how much of the bulk payment is for work in prior years? 

The bulk payment may have kicked you into a higher tax code, but if the remaining months year revert to the usual monthly payment (just at the correct higher pay scale) then some of that may normalise again. 

In the end, the amount you're losing out is effectively the 20% tax on the part of the bulk payment that covers prior tax years. This might also be offset by an NI saving, since you may be paying 2% instead of 8% on some of the income. 

Savy2013

Thank you all.

i will contact my employer. 

I have already hit the 50k threshold this month due to the bulk payment.

Even with the amendments normally I would be well below the 50k threshold.

i am worried that my March salary will get taxed at 40% because of all this and they will place me on a higher tax bracket from April. This latter was indicated by the person from HMRC as a possibility.

SacredStephan

Savy2013 said:

i am worried that my March salary will get taxed at 40% because of all this and they will place me on a higher tax bracket from April. This latter was indicated by the person from HMRC as a possibility.

After 6 April you should log into your Personal Tax Account and update (reduce) HMRC's estimate of your earnings for the new tax year. This should take you out of 40% tax.

Nomunnofun1

Savy2013 said:

Thank you all.

i will contact my employer. 

I have already hit the 50k threshold this month due to the bulk payment.

Even with the amendments normally I would be well below the 50k threshold.

i am worried that my March salary will get taxed at 40% because of all this and they will place me on a higher tax bracket from April. This latter was indicated by the person from HMRC as a possibility.

It won’t all get taxed at 40% in March. 

You will still receive one-twelfth of your personal allowance. You will still have the next £3141 taxed at 20%. 

Based on what you have said you will have NO part of your salary taxed at 40%.

chrisbur

Savy2013 said:

Thank you all.

i will contact my employer. 

I have already hit the 50k threshold this month due to the bulk payment.

Even with the amendments normally I would be well below the 50k threshold.

i am worried that my March salary will get taxed at 40% because of all this and they will place me on a higher tax bracket from April. This latter was indicated by the person from HMRC as a possibility.

If your taxable pay this month is over the £50270 (assuming standard allowance and cumulative tax code) then you are already paying some 40% tax as at month 11 the taxable pay to date for going into the 40% tax band is £46080.
Assuming that your taxable pay for month 12 is lower than £4189 then some of that 40% will be converted to 20% tax so you will pay less tax than you paid on those earnings before the extra payment.

Regarding  "they will place me on a higher tax bracket "
This does not happen as there is no need for it. The PAYE system will deduct some tax at 40% if your taxable earnings are high enough to take you into the 40% bracket.  So if your taxable gross for month 1 is over £4189 then 40% tax will be deducted from the part that is over £4189.  If it is not over £4189 then no 40% tax will be deducted.