Redundancy Payment Looming - Concerned about tax
italianie
Posts: 70 Forumite
in Cutting tax
I am due to leave my organisation very soon and will receive a redundancy compensation payment of approximately £47,500. I will leave my job at the beginning of May, with my final wage paid on the 15th including the above compensation payment. I estimate, my final wage will only be small around £800 as this will only be 6 days pay for the beginning of May, so in total I'll get around £48,300 on the 15th. I'm not a higher rate tax payer but this one off payment would take me over higher rate threshold of £45,000, but the first £30,000 of the compensation payment is tax free, so I should only pay tax above 30k.
What I'm worried about is how much tax will actually get deducted and how much NI I might pay. Really only £17,500 of the £47,500 should be taxable right? As the financial year starts on 6th of April, I'm also entitled to the usual £11,500 of tax allowance, so really I should only pay tax on the £6000, the difference between the two, not factoring in any return to work for the financial year. I've no idea how much NI I'd pay or how this might be worked out?
What worries me is the HMRC might assume the £48,300 is my regular salary and take off higher tax rate from the full amount, by assuming that my salary is going to be £48,300 a month, rather then this being a one off redundancy payment.
Does anyone with experience of this type of redundancy payout, know how this might work on my final pay day, e.g. how much I'm liked to get paid / tax deducted and what I might need to know or do?
What I'm worried about is how much tax will actually get deducted and how much NI I might pay. Really only £17,500 of the £47,500 should be taxable right? As the financial year starts on 6th of April, I'm also entitled to the usual £11,500 of tax allowance, so really I should only pay tax on the £6000, the difference between the two, not factoring in any return to work for the financial year. I've no idea how much NI I'd pay or how this might be worked out?
What worries me is the HMRC might assume the £48,300 is my regular salary and take off higher tax rate from the full amount, by assuming that my salary is going to be £48,300 a month, rather then this being a one off redundancy payment.
Does anyone with experience of this type of redundancy payout, know how this might work on my final pay day, e.g. how much I'm liked to get paid / tax deducted and what I might need to know or do?
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Comments
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The big decision you might want to make is whether you'd prefer your employer to contribute the taxable £17,500 into a pension for you. That way it would avoid tax and employee's NICs altogether. That might be wise depending on your financial circumstances, particularly whether you're going to be earning again in tax year 18/19.Free the dunston one next time too.0
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The big decision you might want to make is whether you'd prefer your employer to contribute the taxable £17,500 into a pension for you. That way it would avoid tax and employee's NICs altogether. That might be wise depending on your financial circumstances, particularly whether you're going to be earning again in tax year 18/19.
Thanks, this isn't going to be an option for me. Whatever amount I end up with will pay off the remaining mortgage and car loan, to enable living on a reduced income. We will survive the tax year 18/19 without me earning a salary, my wife will continue to work. I will return to work the following tax year.0 -
You need to talk to your payroll department and ask them how they plan to handle it. They decide how much to pay you and what to deduct.
The £30,000 should not have tax or NI deducted so make sure that is not being PAYEd. The £17,500 should be subject to NI deducted but it is taxable.
It is subject to PAYE so there will be tax deducted.Higher rate will be deducted from the £17,500 because the system doesn't know how much you will be earned for the rest of the year but you will get it back.0 -
Winebottle wrote: »You need to talk to your payroll department and ask them how they plan to handle it. They decide how much to pay you and what to deduct.
The £30,000 should not have tax or NI deducted so make sure that is not being PAYEd. The £17,500 should be subject to NI deducted but it is taxable.
It is subject to PAYE so there will be tax deducted.Higher rate will be deducted from the £17,500 because the system doesn't know how much you will be earned for the rest of the year but you will get it back.
It's the first £30,000 that I'm worrying about now as they told me the whole amount would be PAYed. Is there not some sort of tax exemption code they put on this amount, so that tax / ni is not added to this on a wage slip?0 -
If it's taxable PAYE will be applied if it's not taxable it won't be0
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It's the first £30,000 that I'm worrying about now as they told me the whole amount would be PAYed. Is there not some sort of tax exemption code they put on this amount, so that tax / ni is not added to this on a wage slip?
Yes there is! They should set up a new payment and call it, for example, Tax free redundancy and apply no tax and no NIC status to it. They should know this.0 -
[quote=[Deleted User];73919668]Yes there is! They should set up a new payment and call it, for example, Tax free redundancy and apply no tax and no NIC status to it. They should know this.[/QUOTE]
Thanks, yes I just spoke to my solicitor who I signed the contract with. She confirmed that this type of settlement is very common place and they will itemize the £30,0000 as a separate tax free amount on the wage slip. If anything looks wrong when it's paid, I might get in touch with a tax adviser. At least the payment falls early in in the new tax year, I think if it fell in March, it would be much worse as it would go on top of my yearly wage.0 -
If you believe it is not taxable what difference would it make when it's paid??0
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Dazed_and_confused wrote: »If you believe it is not taxable what difference would it make when it's paid??
Probably nothing, it's me just overly worrying about this. I'm a bit more relaxed now having sought some advice. My main concern is them getting it wrong and end up paying to much tax. The first £30,000 is tax free, the £17,500 above that will be subject to tax. No idea how it will look on pay day hence my original query. I was just told by HMRC they might apply too much tax, as the system will assume the total some is my monthly salary, rather then a compensation payment. Hopefully not.0
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