Redundancy and tax...

santa_nethy · 23 July 2017 at 4:57PM

Hi,

I'm in the midst of redundancy negotiations and would like some advice please.

Everything so far has been informal, but I have now made the decision that I want to take redundancy. I asked for my redundancy figures from payroll and I'd get paid three months notice, which rounding up is £15k gross... which apparently equates to £8.5k net... I'll also get 2k (net. 4k gross) for annual leave I've not taken...

My question is - that seems like a hell of a lot of tax to pay! I've read that the first £30k of redundancy is tax free, but that it's different if its redundancy as payment in lieu of notice... can anybody help explain the difference, as I'd like to negotiate as much tax-free as possible!

Many thanks

Masomnia · 23 July 2017 at 5:05PM

PILON is not your redundancy pay, it's where you're paid the three months salary and terminated right away rather than being given three months' notice and having to work it. So that is usually taxable.

Holiday pay is taxable.

As I say redundancy pay is separate and not taxable up to £30k. Unless your contract specifies more than the statutory minimum that's what you'l be entitled to. You can use this to calculate it.

If they're not saying you will get anything on top of PILON and holiday pay it may be because you have less than two years' service in which case you have no entitlement to statutory redundancy pay.

santa_nethy · 23 July 2017 at 5:24PM

Ah thank you, so I'm getting PILON and not actual redundancy compensation? That makes sense, I have been with the company just over a year.

I've also asked for an extra month's pay and to waive my notice of a formal consultation (upto 30 days). Do you know if this will be taxable?

And, are there any ways that the PILON can be staged so I pay less tax, or get anything tax free? I'm trying to make the best of my situation.

Thank you so much

santa_nethy · 23 July 2017 at 5:28PM

I should also add that my contract states: "This contract may be terminated upon provision of 12 weeks' notice by either the Company or yourself subject to the provisions of the appropriate paragraph of the Code of Practice."

getmore4less · 23 July 2017 at 9:17PM

Some of that tax will probably be reclaimable but if you have a job to go to that pays similar not as much.

on roughly £60k pa from April to now +3 months an a couple of weeks holidaywe are looking at 8/12 of a year say around £40k so far including the payout, that's under £45k so within the 20% band allthough you will have been paying 40% and probably some 50% on the payout if done through PAYE.

If PILON is contractual or common practice but the company want to terminate and pay rather than give notice i will be taxable as income.

One way to convert to tax free is to get given notice immediately and work some of it(maybe handover) the company can then add some tax free compensation.

do they even need to go through compulsory consultation(needs enough being made redundant) they could have just terminated.

santa_nethy · 23 July 2017 at 9:34PM

There is nothing in my contract about PILON so will have to assume it's common practice....

I guess the only way for me to get 3months pay 'tax free' is for them to pay something like 6months and that will feel like 3 months gross?

Any chance you can give more detail around this point please:

One way to convert to tax free is to get given notice immediately and work some of it(maybe handover) the company can then add some tax free compensation

Thank you

getmore4less · 24 July 2017 at 5:11AM

sime place like to terminate everyone at the same time and just pay full PILON as it keeps things simple where people can have different notice periods.

If the company wants to tidy things up say 4 sept thats 6 weeks away, if you were on notice today you could work the 6 weeks then they could pay 6 weeks gross 6weeks PILON to cover your 12weeks.

another thing to note is that where PILON is definately not taxable the company can keep the tax and still pay net.

Cygnus_Alpha · 26 July 2017 at 9:41PM

santa_nethy wrote: »

There is nothing in my contract about PILON so will have to assume it's common practice....

I guess the only way for me to get 3months pay 'tax free' is for them to pay something like 6months and that will feel like 3 months gross?

Any chance you can give more detail around this point please:

One way to convert to tax free is to get given notice immediately and work some of it(maybe handover) the company can then add some tax free compensation

Thank you

The current rules on PILON is that it is not taxed and there is no NI payable provided it is not contractual. Such payments would be eligible for the £30k tax exemption. The rules change in 2018 though.

Your statutory redundancy is £0 as you have worked less than 2 years but your company can pay you more than that. So by all means ask them for more - such payments will also be eligible for the £30k exemption.

You will be asked to sign a settlement agreement whereby you waive all rights in return for the additional payments.

Redundancy and tax...

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