Assisted separation morphed into voluntary redundancy

armour · 18 July 2017 at 6:44PM

Hi All,
I asked my company to consider my request to move from a 5 day week to a 3 day week. Within the company there is a process for this request (the flexible working program) which necessitated a formal meeting in which myself, my manager and a note-taker were present.
After explaining some reasons why it was unlikely that my request would be granted, my manager said 'however, we are prepared to offer you voluntary seperation'. I asked whether this would be tax free and he said 'yes'. The next day I recieved an email detailing the 'package'. it was in the form of statutary redundancy plus 3 months in lieu of notice. I then sought confirmation that the total would be tax-free and have recieved no reply. A few days later my manager hand-delivered a formal letter inviting me to a consultation meeting to be considered for voluntary redundancy. My question is:
a) Is a'voluntary separation' agreement tax-free? &
b) If it is, can I hold my company to giving me the amount specified in the 'package' tax-free?
BTW, I will be taking the offer regardless.

Undervalued · 18 July 2017 at 6:52PM

armour wrote: »

Hi All,
I asked my company to consider my request to move from a 5 day week to a 3 day week. Within the company there is a process for this request (the flexible working program) which necessitated a formal meeting in which myself, my manager and a note-taker were present.
After explaining some reasons why it was unlikely that my request would be granted, my manager said 'however, we are prepared to offer you voluntary seperation'. I asked whether this would be tax free and he said 'yes'. The next day I recieved an email detailing the 'package'. it was in the form of statutary redundancy plus 3 months in lieu of notice. I then sought confirmation that the total would be tax-free and have recieved no reply. A few days later my manager hand-delivered a formal letter inviting me to a consultation meeting to be considered for voluntary redundancy. My question is:
a) Is a'voluntary separation' agreement tax-free? &
b) If it is, can I hold my company to giving me the amount specified in the 'package' tax-free?
BTW, I will be taking the offer regardless.

The payment in lieu of notice is normally taxable as it is a contractual entitlement. They could make you work your notice in which case it would simply be your salary in the normal way.

Compensation for the loss of your job / redundancy is normally tax free up to £30K.

Technically there is no such thing as "voluntary redundancy" despite it being a fairly common phrase!

If you are genuinely redundant then all they have to give you is your statutory entitlement according to the government formula. Anything else is a mutually agreed separation (i.e a settlement agreement) and the term are whatever you and your employer agree.

armour · 18 July 2017 at 7:07PM

Thanks Undervalued. I understand that in a redundancy situation the payment in lieu is subject to tax, but my question is, would the 'voluntary agreement' also be? i.e. the offer that was made to me verbally in the formal meeting. From what my manager said I don't think so. My follow-up question is, if this is so, can I hold the company the verbal offer made. The amount (of tax) in question is over £2,000.

Undervalued · 18 July 2017 at 7:45PM

armour wrote: »

Thanks Undervalued. I understand that in a redundancy situation the payment in lieu is subject to tax, but my question is, would the 'voluntary agreement' also be? i.e. the offer that was made to me verbally in the formal meeting. From what my manager said I don't think so. My follow-up question is, if this is so, can I hold the company the verbal offer made. The amount (of tax) in question is over £2,000.

Yes, the PILON would normally be taxable if that amount of notice is a contractual entitlement.

Obviously they could choose to pay the tax on your behalf but that is, in effect, just upping the amount of compensation.

Yes, in theory you can hold them to a verbal agreement providing you can prove what was agreed! However paying the correct amount of tax is ultimately your responsibility. If the employer deducts too little tax HMRC can come after you for the rest! If they deduct too much you can reclaim from HMRC.

Formal settlement agreements generally set out what the parties consider the tax position to be and sometimes agree who will be responsible if that is incorrect.

Masomnia · 18 July 2017 at 7:53PM

Redundancy pay is usually tax free up to £30k.

PILON is taxable if your contract entitles your employer to pay it you. If not, then it is tax free.

Outstanding holiday pay is taxable.

Assisted separation morphed into voluntary redundancy

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