PART 1: DATES, DEFINITIONS AND OBLIGATIONS
ARREARS OF PAY A payment in arrears is an item of pay paid after it is usually due. More commonly this arises as a result of a retrospective pay award or upgrading, but it can also arise as a result of an error. Arrears are to be included with all other payments as part of gross pay for calculation of PAYE, notwithstanding that the arrears relate to an earlier pay period (or tax year) and that only one amount of free pay can be given in any pay period. For NICs the pay for the earlier period must be calculated separately as if payment had been made at the correct time and then added together rather than NICs being calculated on the total amount in a single pay period. HMRC allows an easement to this strict rule if the employer can prove it is not practicable to do so, though what constitutes “not practicable” is not specified in the guidance. ARREARS OF PAY FOR CLOSED YEARS Employers may occasionally be requested by a court or Employment Tribunal to pay arrears of pay for previous (closed) tax years, in respect of equal pay claims or a National Minimum Wage Enforcement Order. Where a few individuals are affected the procedure to be adopted is as follows: • For tax purposes the arrears are allocated over the relevant years and the extra payment treated as if it had been made in week 53 of that year. (Note HMRC’s changed approach to week 53 taxation, see PART2, Tax calculation, Week 53 for more information.) • The tax code that was in force at that time should be used (HMRC can tell you which code was in use if you do not have sufficient records). • COPYRIGHT © 2021 THE CHARTERED INSTITUTE OF PAYROLL PROFESSIONALS The tax due is paid within thirty days of the payment date to the local Employer Compliance Office quoting ‘Employer Amendment Class 6 Settlement’ and accompanied by a listing of the names, NINOs and pay and tax for each affected year. • Each affected employee should be given a letter detailing the pay and tax and advising that if an overpayment of tax has now occurred for that year contact should be made direct with HMRC. No RTI submissions should be sent. • For NICs the employer should enter the full amount of the arrears paid on the current payroll record at the time of payment and work out the NICs due in the normal way. For large numbers of employees, employers are required to contact the Compliance Director within the local tax office area (Details of Compliance Directors can be found by telephoning the Employers’ helpline on 0300 200 3200). No printing, copyi g or reproduction permitted. ARRESTMENT OF EARNINGS (Scotland) In Scotland, power to make recovery from earnings for the payment of a civil debt, fine or unpaid Council Tax is made under the Debtors (Scotland) Act 1987 (amended by the Bankruptcy and Diligence Act 2006) and Arrestment rates are up-rated through Diligence Against Earnings Regulations, the latest being the Diligence against Earnings (Variation) (Scotland) Regulations 2018. They must be applied to all new arrestments executed on, or after, 6th April 2013. Employers who choose not to apply the revised regulations to existing arrestments immediately must do so when instructed to do so by a sheriff officer. Orders may fall into one of three categories: • Earnings Arrestments (EAs) • Current Maintenance Arrestments (CMAs)
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