Backdated Teacher Pay and Arrears: Tax, NI and Pension

Why teachers get arrears more often than almost anyone else

Teacher pay awards are implemented from 1 September, in line with the academic year. The process that decides them — a remit letter, an evidence window, an STRB report, a government response, then a statutory consultation and a formal document — routinely concludes after that date. The result is a structural, almost annual pattern: a new rate takes effect in September, payroll applies it some weeks or months later, and the gap arrives as a single arrears line.

The 2026/27 round is a textbook case. The Government accepted the STRB's 36th Report in full on 1 July 2026, with 3.5% on all pay and allowance ranges from 1 September 2026. The draft School Teachers' Pay and Conditions Document 2026 then went out for statutory consultation closing at midday on 23 September 2026, with the final document expected around mid-October. Schools that waited for the document before adjusting payroll produced arrears; those that applied the confirmed percentage from September did not. Either approach is legitimate, which is why two teachers on identical salaries in neighbouring schools can have very different-looking autumn payslips.

Arrears also arise from causes that have nothing to do with the national award: a late-processed move to the Upper Pay Range, a TLR agreed in one term and paid from an earlier date, a corrected pay point after an appeal, a payroll error found at audit, or a successful equal pay or contractual claim. The tax and NI mechanics below apply to all of them, though the first distinction in the next section matters for which rules bite.

Income tax: earnings are taxed when received, not when earned

The governing rule is section 18 of the Income Tax (Earnings and Pensions) Act 2003, and HMRC explains its application to arrears in its Employment Income Manual at EIM42265. Money earnings are treated as received, and paid for PAYE purposes, on the earliest of two things:

• when a payment of earnings is actually made, or a payment on account of earnings is made; or
• the time when a person becomes entitled to payment of earnings, or to a payment on account of earnings.

HMRC adds an important gloss on what "entitled" means: entitlement "is not necessarily the same as the date on which an employee acquires a right to be paid, but the date on which they are first entitled to receive the payment". Its own illustration is that if it is agreed on 1 January that a payment will be made on 1 March, the relevant date of entitlement is 1 March.

That is the whole of the income tax rule. Nothing in it creates a special rate, a penalty, or a different tax treatment for arrears. The money is employment income; it is taxed when received; it is taxed at whatever your marginal rate is once it is added to the rest of your income for that tax year.

Two different things called "arrears", and why the distinction matters

EIM42265 separates two situations that people habitually lump together, and for teachers the difference decides which tax year the money lands in.

HMRC's three worked examples in EIM42265 make the practical consequences unusually clear, and the second one is almost exactly a teacher pay award:

The useful takeaway from Example 2 for a teacher is that a late award is not re-attributed to the months it relates to. It lands in the tax year in which entitlement arises and stacks on top of that year's other income. Within a single tax year — which is what happens when a September award is paid in October or November of the same year — that produces no extra tax at all under a cumulative code. Across tax years, it can genuinely change the picture, and that is the one scenario in which a teacher could legitimately end up paying higher rate tax on part of an arrears payment.

Why the "back pay gets taxed at 40%" belief is so persistent

It is worth being specific about where the belief comes from, because each cause has a different remedy.

The payslip arithmetic looks terrible

A month containing arrears shows a much larger tax figure than a normal month. Divide that month's tax by that month's gross and you get an effective rate well above 20%, because the Personal Allowance and the basic rate band are being applied in monthly slices and the spike sits at the top of the pile. Look at the year-to-date columns instead of the monthly ones and the picture resolves immediately.

Cumulative codes correct backwards, which nobody watches for

Under a cumulative code, PAYE works out your tax-free allowance and band entitlement for the year to date at every payment, compares it with the tax already deducted, and charges the difference. A spike month over-collects relative to a flat month, and subsequent months collect correspondingly less. The correction is real but invisible unless you are tracking the year-to-date figures across several payslips.

Non-cumulative codes genuinely do over-deduct

This is the one case where the complaint is legitimate. On a W1, M1 or X code, each pay period is taxed in isolation as though you earned that amount every month. Apply that to a month inflated by arrears and you really are taxed as though your annual salary were far higher than it is. It does not self-correct while the code stays non-cumulative. If you are on an emergency code and arrears are coming, getting the code fixed first is worth real money.

Confusion with the higher rate threshold

Teachers close to the £50,270 higher rate threshold sometimes see arrears push a month's pay over the monthly equivalent and conclude they have crossed into 40%. Annual income is what determines the band, and for a Teachers' Pension Scheme member the relevant figure is pay after the pension contribution, which is why the real crossing point sits around £55,790 of gross pensionable salary rather than £50,270. Our guide to the Autumn Budget 2026 and frozen thresholds works through that in detail.

National Insurance: the rule that is genuinely different

Income tax reconciles across a tax year. National Insurance does not — it is assessed on each earnings period in isolation, once, and is never recalculated annually for an employee on a normal monthly earnings period.

HMRC's National Insurance Manual states the rule for arrears at NIM02065: "Any arrears of pay, for example a backdated pay increase, must be added to any other earnings received by the employee in the pay period under consideration and NICs assessed on the total amount." Its own worked example takes a monthly-paid employee with £1,800 of normal earnings and £1,000 of arrears and confirms that NICs are assessed on the total of £2,800, using the monthly secondary threshold, lower earnings limit, primary threshold and monthly upper earnings limit.

In plain terms: the arrears lie where they fall. They are not spread back across the months they relate to, and there is no mechanism to re-apportion them afterwards.

The reason this matters is that the employee National Insurance rate is not flat. For 2026/27 the monthly thresholds are:

Because the rate falls above the Upper Earnings Limit rather than rising, concentrating income into a single month can reduce total National Insurance rather than increase it. This is the exact opposite of what people expect from a progressive income tax system, and it is the single most counterintuitive fact about backdated teacher pay.

A worked example: four months of arrears at M6

Take a teacher at M6 on the National rate. Their 2026/27 salary after the 3.5% award is £46,940, or £3,911.67 a month gross. Before the award their monthly gross was £3,779.47, so the uplift is worth £132.20 a month. Suppose the award reaches payroll in January, backdated to 1 September — four months of arrears, £528.80, paid alongside January's salary.

Identical gross pay across the five months; £15.06 less National Insurance for having been paid late. The arithmetic is straightforward once you see it: January's pay of £4,440.47 exceeds the £4,189 monthly Upper Earnings Limit by £251.47, and that slice is charged at 2% instead of 8% — a saving of 6% of £251.47.

It is a small sum, and nobody should feel compensated for a late pay award by fifteen pounds. But the direction of the effect is the point. Every year, a large number of teachers look at an arrears payslip, see a bigger deduction line than usual, and conclude they have been penalised for the delay. On National Insurance specifically, a teacher whose ordinary monthly pay sits below the Upper Earnings Limit but whose arrears month rises above it — which, on a several-month backdating, covers a good deal of the top of the Main Pay Range and the Upper Pay Range — is very slightly better off, not worse.

When the same rule works against you

The per-period rule is neutral machinery, not a benefit, and for one group of teachers it produces the opposite result.

A part-time teacher on a low fraction may have monthly gross pay below the £1,048 monthly Primary Threshold, and therefore pay no employee National Insurance at all in a normal month. A lump of arrears can lift a single month above £1,048, creating an 8% charge on the excess — National Insurance that would never have arisen had the same money been spread across months that each stayed under the threshold. There is no reconciliation and no refund route for this, because the NI system does not reconcile.

The same logic can affect anyone with irregular earnings — a teacher combining a small contract with supply work, someone returning from a period of unpaid leave, or a teacher whose pay is being made up across two employments. If your monthly pay normally hovers near either threshold, the arrears effect is worth looking at rather than assuming.

Student loan repayments: per period, and reclaimable

Student loan repayments follow the same per-period logic as National Insurance. Your employer applies the monthly threshold for your plan to each month's pay in isolation, rather than working out 9% of annual income above the annual threshold and dividing by twelve. A month inflated by arrears can therefore trigger a repayment even where your income for the whole tax year comes in below the annual threshold.

Unlike National Insurance, this one is reclaimable — but only if you ask. HMRC's guidance confirms that where total income for the year came in below the annual threshold, you can ask the Student Loans Company for a refund of repayments taken in a month where a one-off payment pushed you over. It is not automatic. Our take-home pay calculator's student loan section sets out the plan thresholds, the two-plans-at-once position for teachers with a PGCE Postgraduate Loan alongside an undergraduate loan, and the refund route, so we will not duplicate it here.

Teachers' Pension: arrears are pensionable, and the tier question

Arrears from a consolidated award are fully pensionable

If the underlying pay is pensionable, the arrears are pensionable. Contributions are deducted from them, and they count towards your career average accrual. The Teachers' Pension Regulations 2014 treat arrears payable by reason of a retrospective increase as becoming payable in the pay period in which they are paid — the same "lie where they fall" logic as National Insurance, applied to the scheme.

The critical qualifier is consolidated. A consolidated award is built permanently into your scale point and is pensionable pay. A non-consolidated one-off payment is generally not pensionable at all, even though it is fully taxable and subject to National Insurance in the normal way. Two payments of identical cash value can therefore have completely different long-term effects. Our guide to non-consolidated pay awards covers that distinction in full.

The tier question, and the answer that surprises people

The Teachers' Pension Scheme charges member contributions on a banded basis: your whole salary is charged at the rate for the band it falls into, not marginally. For England and Wales from 1 April 2026 the bands run from 7.4% up to 12%, with boundaries at £36,199, £48,728, £57,777, £76,573 and £104,414. Because the system is banded rather than marginal, crossing a boundary increases the rate on your entire salary, which is why the question "does a big arrears payment push me into a higher tier?" is a real one with real money attached.

The answer is reassuring, and it comes from Teachers' Pensions' own employer guidance on calculating contributions. Employers must first determine the member's annual salary rate for the pay period in order to identify the band and corresponding contribution rate — and overtime and backdated pay increases are not included when determining that annual salary rate. The backdated pay is separately included in pensionable earnings for the period, so contributions are taken on it, but it does not on its own tip you into a higher tier for that month.

A second point from the same guidance is worth knowing if your arrears span a scheme year boundary: the contribution rate applied to a backdated payment is the rate in force at the date the payment is made, not the rate that applied during the period the arrears relate to.

The Annual Allowance angle, for leaders

A lump of arrears increases your pensionable earnings for the scheme year in which it is paid, which increases your Pension Input Amount for that year — the figure measured against the Annual Allowance. For a classroom teacher this is a non-issue. For a school leader, particularly one who has also been promoted or received a significant uplift in the same year, arrears can be a contributing factor in a year that breaches the allowance. Our Annual Allowance calculator will show whether you are anywhere near it.

What to actually check on an arrears payslip

• Is the tax code cumulative? If it shows W1, M1, X or NONCUM, the arrears have been taxed in isolation and you are very likely over-deducted. This is the only income tax issue on this page that does not fix itself. Get a P45 or starter checklist to payroll, or contact HMRC.
• Does the arrears figure match the period it should cover? Multiply the monthly uplift by the number of months between the effective date and the month the new rate was first applied. It should reconcile to the penny. If it does not, ask for the calculation.
• Was a pension contribution taken on the arrears? If the award was consolidated, it should have been. If none was taken, the arrears may have been coded as a non-pensionable payment, which would quietly cost you pension accrual.
• Did your pension contribution rate change for that month? It should not have done purely because of the arrears. If it jumped a tier, query which annual salary rate was used.
• Was a student loan repayment taken? If so, note the amount. If your total income for the tax year comes in below your plan's annual threshold, you can reclaim it from the Student Loans Company after year end.
• Check the year-to-date columns, not the monthly ones. The monthly figures on an arrears payslip will always look alarming. Year-to-date taxable pay and year-to-date tax are what tell you whether your position is actually right.

Sources

• EIM42265 — meaning of "received": backdated pay and arrears of pay — HMRC Employment Income Manual, including the three worked examples summarised above.
• EIM42260 — meaning of "received" — HMRC Employment Income Manual (section 18 ITEPA 2003, the earliest-of rule).
• NIM02065 — Class 1 NICs: arrears of pay — HMRC National Insurance Manual.
• Rates and thresholds for employers 2026 to 2027 — GOV.UK (monthly Primary Threshold £1,048, monthly Upper Earnings Limit £4,189, employee rates 8% and 2%).
• Calculating contributions — Teachers' Pensions employer guidance (annual salary rate excludes backdated pay increases; rate in force at the date of payment applies).
• School Teachers' Review Body 36th Report: 2026 — GOV.UK (the 2026/27 award and its 1 September effective date).

What we could not verify. We were not able to find a published Teachers' Pensions figure for how frequently arrears are mis-tiered in practice, so the note above describes it as a recurring source of queries rather than quantifying it. The worked National Insurance example uses the published 2026/27 thresholds and the STPCD National rate for M6; your own figures will differ if you are in a London or fringe area, part-time, or hold an allowance.