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Application of PAYE following employment tribunal

Q: An employee discovered that a male colleague who performed the same role as her was being paid a higher salary than her and had been paid for a number of years. A case was submitted to the employment tribunal and the employee won. A settlement was reached which encompassed several years’ back pay with the agreement being that arrears would be paid over the next 12 months. The question that was raised was should this be taxed upon receipt or should PAYE be calculated at the rate that would have applied for each of the years in question?

A: The rules in para 11.4 of Notice 700 are misleading and would suggest this VAT claim was possible however the law in Regulation 111 of SI1995/2518, and the guidance in VIT32000, are clearer as to the actual meaning of the pre-incorporation VAT claim rules. The purchases must be for the benefit/purpose of the company. In this scenario the van was purchased for the benefit of the sole proprietor business and was used by the sole trader business to make supplies prior to incorporating. The VAT incurred by the sole trader cannot therefore be recovered as pre-registration VAT by the company; if the sole trader had VAT registered prior to incorporating, it could have recovered the VAT on the van itself under the pre-registration rules.