Created on: 23 Mar 2023 | Last modified: 27 Mar 2024
Under UK tax law, income from employment is taxable at the date on which an employee becomes legally entitled to the payment.
With respect to backpay due under the terms of the recent pay settlement for teachers in Scotland, employees became legally entitled to the applicable amount on 14 March 2022, which was the date on which SNCT Circular 23/93 was issued to employers.
The EIS put the maximum possible pressure on Local Authorities to have the 2022/23 pay increase and all applicable back pay processed in their March 2023 payroll. Whilst a number were able to do this, many were not.
Where Local Authorities were unable to process back-pay within the tax year ending 5 April 2023, the amounts payable will be taxed under PAYE in the tax year 2023/24.
For many teachers, this treatment resulted in them paying more tax than would have been payable had their backpay been processed within the 2022/23 tax year. The precise amount payable will depend on the individual member’s point on the pay scale and their tax code.
However, for a teacher at Point 5 on the main grade scale with a standard tax code, the additional tax payable has been calculated at approximately £382 (on the basis that the higher rate of tax is only applicable earnings above £43,663).
Those below Point 3 on the main grade scale are unlikely to be affected as their top rate of tax will probably be 21% in both years, regardless of into which year the applicable back pay falls.
Similarly, those above Point 3 on the Chartered Teacher scale, Point 2 on the Principal Teacher Scale or on the Lead Teacher Scale are unlikely to be significantly affected as their top rate of tax will probably be 41%/ 42% in both years, regardless of into which year the applicable back pay falls.
Tax overpaid due to back-pay being processed in an incorrect year can be reclaimed from HMRC. However, there is no route to doing so prior to the end of the 2023/24 tax year and the receipt of your P60 pay summary for that year.
If you are required to prepare a Self-Assessment Tax Return, then you will be able to include the necessary adjustments on your return for the tax year 2023/24.
However, the vast majority of members will not be required to submit a tax return.
If you are not required to complete a tax return, you are advised to write (a physical letter) to HMRC, enclosing a copy of your P60 for the 2023/24 tax year and a copy of the payslip showing the payment of your back pay. A simple letter is all that is required, and can be based on the following template.
"Pay As You Earn
HM Revenue and Customs
BX9 1AS
United Kingdom
Dear Sir/Madam
During the tax year 6 April 2023 – 5 April 2024 I received from my employer (***Employer Name***) an arrears of salary payment for the tax year 6 April 2022 – 5 April 2023 in the sum of (£***)
As this was taxed in the 2023-2024 tax year I believe I have overpaid tax, can you please reallocate the payment to the correct year?
Thank you in anticipation of swift consideration of and response to this matter.
Regards”
The Institute remains in consultations with HMRC and employers with regard to this issue. Given the number of teachers affected, HMRC has sought to collaborate with local authorities to create a more streamlined approach through which to process payments. We await the outcome of those discussions and will advise affected members further ahead of the Easter break as to any further developments.
Examples
For information we have provided some worked examples.
These examples show how the adverse figures are arrived at for teachers at Main Grade Point 5 and Principal Teachers at their scale Point 1.
Other examples show why anyone above principal teacher Point 3 or below Main Grade Point 3 will not be affected one way or the other.
There are a number of other potential variables: