Paying tax on arrears received from previous years

I am a PAYE worker and due to receiving the wrong amount in my pay packet for the last 5 years, I have just received a considerable sum of arrears. This was taxed as though it were earned in 2011. My query is this: as most of this money should have been received by me when tax rates were lower and before the USC was introduced, should I be taxed on it using 2011 tax rates? If I had been taxed on it throughout, I would be receiving about €2,500 more than I did. Do I pass it back to my employer to sort out the tax issue, or do I contact the revenue commissioners myself? Or do I just pay the 2011 tax rate? Thank you.

Tax is due when paid, so revenue cannot do anything for you. your employers should really gross up the amount though so that your net pay is the same as it would have been....pass it back to them-
Out of interest --how did you not notice that your wages were wrong?

I knew I saw something about this once...

You can ask Revenue to allocate the tax to the correct years (you'll need to provide a breakdown from your employer)

You then get the all the years in question reviewed using the gross pay as it would have been including the arrears giving you an underpayment for each year and get this year reviewed giving an overpayment to set off against the underpayments. AFAIK you'll have to wait until after year end to do this.

The four year limit applies from when you receive the arrears.

Source: [broken link removed] pdf on Revenue's site. (example B refers)

It only mentions the income levy not giving rise to an adjustment and does not mention USC so only differences relating to tax rates would give rise to overpayment (ie if you were pushed into the top rate by the arrears all arising in one year).

HTH
Sybil

Thanks for the info Windup. I was hoping that wasn't the case! I have known all along that my wages were wrong, it was to do with a query over my qualification. I was always told that once the query was resolved I would get back pay for the period. It just took 5 years to resolve the query! It had to be approved by a panel that sits every 2-3 years, and the first time they didn't approve it, but on appeal they approved it. There's no way that I will get extra, and to be honest I'm just delighted to have got the money.

I think WindUp is mistaken. PAYE does mean that tax is taken on the date payment is received, but PAYE is only a collection arrangement. You can take the steps that Mrs Vimes suggests.

Many thanks for the posts, especially Mrs Vimes for that helpful document. I will get a breakdown from my employer and follow up with the revenue commissioners.

delighted to be wrong---best of luck with it

I'd be inclined to let sleeping dogs lie. You never know what opening up previous years might do.

Bronte said:

I'd be inclined to let sleeping dogs lie. You never know what opening up previous years might do.

Click to expand...

I wouldn't be inclined to just let 'sleeping dogs lie' out of worry of what might be uncovered in those years. However, I would advise that you check your P60 and use an online tax calculator to make sure you haven't underpaid tax in any of the earlier years.
If everything looks in order THEN send your request to Revenue.

Never mind