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HMRC internal manual

Compliance Operational Guidance

Supporting Guidance: employer compliance: guidance by subject: employer and contractor’s role: arrears of pay

Income Tax

Income tax is due when earnings are received. Earnings are treated as received on the earliest of the following

  • when a payment of earnings is actually made or when a payment on account of earnings is made (EIM42270)
  • the time when a person becomes entitled to payment of earnings or a payment on account of earnings (EIM42290).

The date on which a person becomes entitled to a payment of earnings is not always the same date as that on which the earnings are paid.

National Insurance  

National Insurance is due when a payment of earnings is made ‘to or for the benefit of an earner’. Liability arises at the time the earnings are paid. (NIM02005)

Equal Pay Act (1970)

National Minimum Wage Act (1998)

The Equal Pay Act (1970) and the National Minimum Wage Act (1998) give a worker a right to equal pay and/or the appropriate national minimum wage. Entitlement to equal or higher pay arises from the time when lower or discriminatory earnings were paid.

Where an employer is obliged to pay arrears of pay for several years (for example where a court orders the employer to pay arrears under equal pay legislation) the process of calculating and paying over the tax due can be complex and burdensome. For this reason an employer can select to pay the tax by way of

  • a special arrangement
  • an employer amendment.

Where arrears of pay have been paid for closed years and PAYE has not been operated or NIC deducted you should