Redundancy and Mat leave tax

SplanK · 21 August 2014 at 9:19PM

Hi all,
My wife is due our 2nd child in Feb, in the same month she will also be made redundant in the same month. We are expecting her to go on mat leave in late Dec/Early Jan after year end is complete.

She is entitled to SMP and we accept that she will receive what ever is left for SMP in one lump sum, and this will be taxed accordingly.

However here is the snag, she will be taxed on all of the SMP as its paid in one lump sum in 2014/2015 tax year. If she was not being made redundant, then although the income is taxable she would be under her allowance in 2015/2015 and thus pay no tax on anything received after April 6th.

I have worked out the way she will be paid her SMP, we stand to be a decent amount out of pocket, money which would be rather useful as we are saving for our next house!

Has anybody challenged the amount of tax paid on SMP when paid in one lump sum? We appreciate anything that would have been originally paid in 2014/2015 is taxed as she is over her tax free allowance, however come April.... I am assuming its a conversation we need to have with the tax office, but I am not sure if I would just be wasting my breath?

Dr_Teeth · 21 August 2014 at 10:52PM

It's taxable when paid, so you'll have no success taking it up with the tax office.

silvercar · 21 August 2014 at 11:15PM

Are you sure the lump sum of the SMP won't be considered part of the redundancy payment and paid tax free up to the redundancy limit (£30k).

If you are sure then you need a conversation with the employer to delay some payment.

Remember also that annual leave on maternity leave builds up, so that is another reason to try and get the redundancy date delayed.

purdyoaten · 22 August 2014 at 7:36AM

http://www.hmrc.gov.uk/manuals/spmmanual/SPM21030.htm

http://www.hmrc.gov.uk/manuals/nimmanual/nim09310.htm

SplanK · 22 August 2014 at 11:13AM

Thanks all,

The wife confirmed with her HR dept that the SMP will be treated separately to redundancy payment and thus taxable.

I am in 2 minds about delaying redundancy (if its an option, but I understand it wont be as her VRA is signed for her to finish in Feb and is non negotiable - it is what it is!). Although legally entitled to it, I don't want there to be any reason why they would try and wriggle out of it if that makes sense as its not a small sum we are looking at over all, I would prefer to get it ASAP after her contract has come to an end. Also, we are looking at moving early next year and the money so delaying would also delay that.

It does seems as though its 'not great practice to pay in a lump sum' but there isn't much we can do other than discuss with the employer and attempt to find a solution if they are willing to but legally they don't have to.

Oh well, I think we will ask her employer to take a look at any options which would somehow, not avoid paying any tax, but ensure that we are not out of pocket (IE increase the redundancy pay by the amount of tax lost on SMP lump sum or something like that...)... if not then its a dam shame as its a decent amount that's potentially being lost BUT in the grand scheme of things, its not worth loosing too much sleep over!

chrisbur · 22 August 2014 at 11:49AM

Not sure if when you speak of tax you are including national insurance as there is also a loss regarding this if paid in a lump sum. This would also be an additional cost for the employer so may be worth mentioning to them that their cost would be a bit lower if not paid as a lump sum. They would also avoid the risk of having to reclaim an over-payment if during the maternity pay period the maternity pay entitlement ceased for any reason.

Redundancy and Mat leave tax

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