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Posted Wed, 17 Apr 2024 08:57:01 GMT by Devon_Fox
Hello, I have a question around tax paid when earnings are from the previous tax year. From the 1st of February I went up a pay band in my current employment. Due to a HR error this information was not passed onto payroll and I didn’t receive the increase of salary in February and March’s pay. Because of this I will be receiving a back payment. Due to my increase of salary, there is a good chance that for the current 2024/25 tax year I will be pushed into the 40% tax bracket. On the HMRC paye manual I have come across: PAYE70023 ( which states that the tax liability arises in the year that the employee was originally entitled to be paid and not in the year that payments are eventually made. If the payment is made under the 2023/24 tax year I will be taxed under the 20% rate. I raised this with my payroll department to ask if they would be following PAYE70023. I have received a response that they will pay the back payment in April’s pay and that they will be using PAYE93091 ( which states that arrears are paid in one lump sum in the current tax year then paye is due at the time of payment. Please could you advise on the following: - Is it possible in my case for payroll to use PAYE70023? - If the company pay the arrears this month and I am taxed in the current tax year, is there a process for them to reallocate the tax in future months, or a way that at the end of the tax year, I can request that the payment be reallocated to the 2023/2024 tax year via a tax return? Thank you
Posted Thu, 18 Apr 2024 11:14:39 GMT by Devon_Fox
Please could one of the HMRC admins take a look at this? Thank you
Posted Mon, 13 May 2024 11:21:42 GMT by HMRC Admin 5

If a sum is paid to an employee in respect of arrears of pay Rule 2 of s18 ITEPA gives the earliest time entitlement arose before the arrears were paid.
The lump sum is not assessable in the year in which it is paid. It must be broken down into sums attributable to the years that the arrears are for. 

This has been taken from

I can see the PAYE manuals are contridicting each other here but the Employment Income Manual is taken from the legislation so this it was would followed. 

Basically it should be taxed in the year the entitlement to the payment arose.

Thank you
Posted Tue, 14 May 2024 12:03:30 GMT by Devon_Fox
Hello HMRC Admin 5, Thank you for getting back to me, I'll contact my payroll department. Thank you

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