Tax Back on Back Payment of Salary

M

Marsha

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Hi I work for the Public Services and for a number of year I was on the wrong salary scale.

In March this year I received back payment of my salary - 16 years worth, which was of course all taxable, however it was taxed on this years tax rate, and includes USC etc? My question is how do I go about getting any tax I am due back on this repayment of my salary, and also will I have to wait till the next tax year?

Much appreciate any help.
 
I would expect that any repayment would go through at this year's rates... it would be nigh-on impossible to recomputed the tax liability under each year's tax code. I expect it is being processed as a top-up to this year's remuneration and so underutilisation of previous tax credits would be lost (not what you want to hear I'd expect). Are you being given any extra to cover the time element of the loss (i.e. pay due to you 16 years ago could not be compared euro-for-euro with the same amount now!)?
 
No but they did say they would issue me with a tax analysing statement in the new year, as this was in March does it mean I need to wait till Jan 2016? Also PRD And USC were large. I paid approx €3000 PAYE nearly €800 PRD and €600 in in the payslip I got the arrears in. I got less than half the arrears due to me. Thanks for your input rob.
 
They are correct in operating the PAYE system in the year that they pay you the remuneration. That's what the PAYE legislation says.

HOWEVER, from your personal income tax perspective, you are entitled to have the income assessed to income tax in the years to which the income relates. You'll need to engage with your tax district next year, and I'd suggest depending on the amount in question it might make resolving it much simpler if you get a decent tax advisor involved.
 
I doubt the effect would be material.

You can only go back 4 years for any refunds (Section 865) and rates have been pretty static over that period.

So unless you'd no income in one of those years (which doesn't seem to have been the case), it's probably a moot point.
 
Gordon Gekko said:
I doubt the effect would be material.

You can only go back 4 years for any refunds (Section 865) and rates have been pretty static over that period.

So unless you'd no income in one of those years (which doesn't seem to have been the case), it's probably a moot point.
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No, you're looking at it the wrong way Gordon.

The tax has all been paid in 2015, but the income was earned and is properly assessable to income tax, over the last 16 years. Bedford (Collector General) v H (1968) establishes this principle in the Irish context.

SO in rectifying the situation the OP would be :

1. Making a return for 2015 indicating that her income under Schedule E assessable for 2015 is substantially less than that indicated on the P60. The credit for tax deducted is however unchanged and this will trigger a substantial repayment for 2015.

2. Each of the previous 16 years will need to be revised (balancing statements / assessments as appropriate in the OP's case), and these adjustments will result in a liability for those years.

Assuming the OP is a high rate taxpayer, and given the fact that the marginal rate of tax is substantially higher now than for most of the last 16 years, the additional tax arising would be substantially less than the repayment due for 2015 - resulting in a net repayment of probably 10 - 20% of the tax deducted in 2015, even more if the OP was a standard rate taxpayer in some earlier years... piece of string thing really, hence I suggested OP at least consult someone who understands the issue to figure out whether it's a worthwhile exercise...
 
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I doubt that there's any point in doing this.

Never mind the logistics, the combination of a higher marginal rate of income tax in years gone by and the health levy probably get close to negating the effect of the USC.
 
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It depends entirely on the amount in question and the marginal rate in the back years... It's definitely worth taking the time to calculate!

Also, if the PRD at a high rate has been applied to the whole lot, this is another consideration - that's another X% that wouldn't exist for most of the 16 years... not sure how one tackles that issue though!
 
Who's responsibility is it to do the recalculations? The employer or the Revenue or an accountant?
 
TTI said:
Who's responsibility is it to do the recalculations? The employer or the Revenue or an accountant?
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Not the employer's (under legislation at least) - their obligation is to operate the PAYE system of deduction, and they're correctly deducting at the rates in force at date of payment.

Not the Revenue, since the tax system is self assessment - the responsibility is with an individual taxpayer to ensure their own affairs are in order and if they believe they've overpaid tax to claim their repayment.

Now, in this case, the employee should be able to get from the employer a statement breaking down the lump sum adjustment to gross pay in 2015, as to how much relates to each of the previous 16 years.

The only complicating factor is the PRD, and as that is not a tax but does reduce the taxable gross, I'm not sure what the correct position is in how you recalculate 2015 - the OP should engage with her payroll / HR area in relation to that - it defies logic that PRD should be operated on the portion of the back pay that relates to the years that no PRD existed, but again that will depend on what the legislation underpinning the PRD says.
 
TTI said:
PRD - Pension?
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PRD = "Pension Related Deduction".

It's not a pension contribution, because it confers no pension entitlement, and there are some people paying it who aren't even in the occupational pension scheme.

It is simply a deduction from gross pay - a pay cut by another name.

But the point is, it didnt exist until 2010-ish, so you'd have to question whether it can be deducted (at the marginal rate) from a payment of this type just because it's being made in 2015.
 
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This happened my wife last week. She is also a public servant. There was no warning, not even a letter of explanation. The only indication of what it was for was Arrears (grouped) appearing on her payslip.

She has ended up paying the pension levy and USC on earnings for years that those taxes did not exist.

I am absolutely livid that it was paid without warning or explanation. If we had some notice we would have had the opportunity to lessen our tax liability for the particular year that the money was being paid in. Instead she ended up paying over 60% tax on the income.
 
Gordon Gekko said:
I doubt that there's any point in doing this.

Never mind the logistics, the combination of a higher marginal rate of income tax in years gone by and the health levy probably get close to negating the effect of the USC.
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This seems to be very poor advice. I would engage a tax professional and also approach your employer to ensure that you are NOT out of pocket as a result of their error.
 
Itchy said:
This seems to be very poor advice. I would engage a tax professional and also approach your employer to ensure that you are NOT out of pocket as a result of their error.
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Is it really? It isn't advice - Merely an observation that I would be surprised if the benefit outweighs the cost.

But no, your suggestion to "engage a tax professional" is clearly great advice. Having income that's been taxed at the OP's marginal rate in 2015 taxed at the OP's marginal rate in previous years and paying a professional to undertake the assignment is clearly fantastic advice.

We're talking about circa six grand here. And then very small percentages of six grand.
 
Gordon Gekko said:
Is it really? It isn't advice - Merely an observation that I would be surprised if the benefit outweighs the cost.

But no, your suggestion to "engage a tax professional" is clearly great advice. Having income that's been taxed at the OP's marginal rate in 2015 taxed at the OP's marginal rate in previous years and paying a professional to undertake the assignment is clearly fantastic advice.

We're talking about circa six grand here. And then very small percentages of six grand.
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I don't see where anyone mentioned 6 grand? :confused:
 
Jon Snow said:
I don't see where anyone mentioned 6 grand? :confused:
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What's with the ridiculous funny face?

The OP mentioned that he/she suffered tax of circa €3k in the relevant payslip. That's circa €6k/€7k of extra income in any man's language.

If the other half comes through, it'll be the same story.

It's also unclear whether the €3k of tax was on the extra income or the OP's total income that month!

Given the numbers involved, the idea of engaging a tax professional and undertaking some form of grand exercise could be utterly ridiculous.
 
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