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HMRC internal manual

Employment Income Manual

Tax treatment of members of the police service: arrears of pay on reinstatement

Under police procedures, officers found guilty of offences against discipline may be required to resign immediately. However the Police Acts allow for an appeal process which can lead to the officer being reinstated, with full arrears of pay, under an order made by the appropriate Secretary of State.

The appeal process can take many months. An arrears payment following reinstatement could therefore relate to arrears of pay for more than one year of assessment, and could at the time of payment trigger a liability to higher rate tax that would not normally arise. The arrears payment must be assessed in the year of receipt following the normal principles of receipts basis in EIM42260 onwards.

Do not accept that an order for reinstatement creates an entitlement to payment of earnings (see EIM42290) at a date that falls earlier than the date of the order made by the appropriate Secretary of State. For example, if a police officer was required to resign in December 2004 and, following a successful appeal, was reinstated by an order signed by the Secretary of State in July 2006, the reinstated police officer has no entitlement to a payment of arrears until July 2006 Receipts basis applies and the arrears are all taxable in 2006/07.