Scotland’s teachers have collectively been left out of pocket by potentially tens of millions of pounds, as the result of an ongoing impasse between 16 Scottish local authorities and His Majesty’s Revenue and Customs (HMRC) over the implications of the 2022-23 pay settlement to Scotland’s teachers.

Tax changes which came into force in April 2023 led to tens of thousands of teachers being overtaxed on back pay earned during the year 2022-2023, but which was taxed at the higher 2023-2024 rate, as a result of late payments by a significant number of Scottish local authorities. The loss for individual teachers varies, but generally runs to several hundred pounds of overpaid tax for each teacher involved.

Following many months of seeking resolution on behalf of its members – including frequent discussions with HMRC, COSLA and individual local authorities, and the employment of a firm of external tax advisors, the EIS has escalated the matter to the highest level by writing to the Exchequer Secretary to the Treasury, James Murray MP, calling on the UK Government to resolve this issue as a matter of urgency by ordering the repayment of overpaid tax to the thousands of Scotland’s teachers who are owed it.

Since first being made aware of the issue in April 2023, the EIS has repeatedly attempted to seek a resolution. 

In the letter to Mr Murray, EIS General Secretary Andrea Bradley says, “I write with regard to the classification of backpay owed to thousands of our members in respect of the tax year 2022/23, which was not paid on time but was paid in the following tax year by payroll systems across a large number of Scottish local authorities. This was following a protracted dispute over pay, where resolution was only reached through EIS members taking extensive industrial action, which ended with a settlement being reached in early March 2023.”

The letter continues, “From April 2023, thousands of EIS members, across 16 local authorities, have suffered significant financial disadvantage as a result of the delay in receiving backpay through no fault of their own – as the backpay paid in in the tax year 2023/24 fell to be taxed at the Scottish higher rate of 42%, rather than typically being taxed at 21% if it had been paid in the preceding year, as it was for teachers in Scotland’s other 16 local authorities.”

The letter adds, “Since first being made aware of the issue in April 2023, the EIS has repeatedly attempted to seek a resolution. Thus far, however, neither HMRC nor the local authorities in question seem willing to rectify what are scandalous detriments to thousands of Scottish teachers, the EIS believing the total amount that Scottish teachers are owed, to run into the tens of millions of pounds.”

The letter concludes, “We trust that you will agree that continuation of this situation is neither fair nor acceptable, and that HMRC, COSLA (Convention of Scottish Local Authorities) and the 16 local authorities in which teachers have been underpaid, ought no longer to avoid doing what is right and what is required to bring about a just resolution.

We respectfully request that you raise this matter with the relevant HMRC colleagues as an important next step towards the realisation of pay justice for the tens of thousands of Scottish teachers who continue to suffer this detriment.”

Actions taken by the EIS in attempt to resolve this issue so far…

May 2023

Having taken independent professional advice, the EIS first wrote to HMRC in May 2023 advising that there were between 15,000 and 20,000 Scottish teachers who would require to make individual claims for refunds, which they would be eligible to do once they were in possession of a P60 for the 2023/24 tax year.

At the same time, the EIS wrote to the affected local authority employers, enclosing a copy of our letter to HMRC and asking that they share this with their relationship manager at HMRC.

August 2023

The EIS was contacted by HMRC in late August 2023. At this point, HRMC did not disagree with the advice which the EIS had received from our independent advisors.

In March 2024, with the issue of P60s for the 2023/24 tax year imminent, the EIS made contact with HMRC once again, requesting guidance as to how our members should go about submitting individual claims to have their back pay reclassified from 2023/24 into 2022/23 in order to obtain the tax refund that they were due.

May 2024

On the basis of information received from HMRC, in May 2024, the EIS wrote to the affected local authority employers and to COSLA, quoting the correspondence which HMRC had issued and asking for confirmation that the advice had been received. The EIS also requested a timescale for when the recommended retrospective adjustments would be actioned.

In response, the EIS received a number of very similar communications from individual local authorities, containing an argument based on an erroneous extract from the HMRC Employment Income Manual, and which ended with the statement, “We will not be making any adjustments to the information submitted to the HMRC.”

On 30 May, the EIS again wrote to COSLA setting out the reasons why the arguments presented by local authority employers were incorrect, copying this correspondence to all local authority employers who had used these as a basis for their responses.

On 31 May, an email response was received from COSLA, which suggested that the common wording within responses from local authorities had originated from an informal meeting of some of the affected local authorities. However, this message stated also that the principal driver for resistance to applying the advice received from HMRC was to do with administrative capacity rather than technical tax compliance.

June 2024

During June 2024, many of the EIS local associations in the affected local authorities raised this matter with their employers. In these instances, whilst no local authority refuted the technical arguments which the EIS had put forward, they stated that had they been advised that having submitted year end returns on the basis of the tax deducted from pay each year, they had fulfilled their statutory responsibilities, and whilst they acknowledged requests made by HMRC to process retrospective adjustments, the EIS were continually advised that they would not be doing so as they did not have the technical and/or administrative capacity.

Of the then 17 affected local authorities, the only exception was City of Edinburgh Council, who, on 15 May 2024, advised that they were working to make the necessary payroll adjustments in June 2024 so that members in Edinburgh would have their tax corrected.

In the meantime, a number of EIS members did submit individual requests to HMRC to have their back pay reallocated from 2023/24 to 2022/23. Those who did received a variety of responses that were subsequently shared with the EIS:

Some had their request processed and received a repayment;
Some were asked for additional, personalised supporting documentation from their employer; and
Others were told that it was the responsibility of their employer to make such adjustments and that HMRC could not process their request.

September 2024

In September 2024, the EIS formally engaged external advisors to communicate with HMRC on our behalf. They advised that an HMRC officer had stated that the guidance which allowed for applications from individual taxpayers to be addressed by HMRC, should only apply where the employer has made a ‘mistake’.

At this point, the EIS understands that staff at HMRC had been advised that no further refunds should be processed relating to the back pay issue.

…STOP PRESS…STOP PRESS…STOP PRESS…

Just as this SEJ was going to print, the EIS received a reply from James Murray MP, which stated, “Officials in HMRC are working to support employers in Scotland to make sure these payments are treated correctly, and encouraging them to take corrective action where required.”

The General Secretary has written back to Mr Murray, seeking clarification on timescales and emphasising the need for a swift resolution to this long-running saga.