Originally Posted by Salsaboy
I can't think how the lump sum arriving in a different tax year would affect anyone other those near the higher rate threshold?
I assume that anyone under £40k ish pa would still only pay BR?
Salsaboy.
That would be correct if we got paid annually but we don't. Your tax is worked out monthly pro rata for the year, i.e. Whatever you get paid in the month is multiplied by 12, you then pay tax accordingly.
If your gross for January is £2500, this is multiplied by 12 (£30k) so it keeps you under the higher rate (of £36k I think it is now).
If you earn £3500 in the month this will equate to £42000 in the year, so £6k over the top end. £36,000 divided by 12 is obviously £3,000. So £500 of your monthy wage will be taxed at 40%.
If you added a £1500 backdate to your monthly wage then a fair chunk of it will be taxed at 40%. Because you should have received the payrise in small portions per month (keeping it under the top end rate) if you are earning anywhere near £3,000 per month now then all of the backdated pay will be taxed at 40%. That equates to a few hundred pounds out of pocket.
Unless of course, the taxman will be informed it is backdated pay and tax it as it should have been taxed originally. I doubt it though.