Redundancy payment and tax

jimmo

If your redundancy follows the pattern I previously outlined, that is you gat your final salary on your last day of service and you get your redundancy money the next day, the correct PAYE procedure is that your employer must give you a P45 on your last day of service and it will show only your salary and tax deducted from your salary.
The following day, when he pays you the redundancy money, that is termed a “payment after leaving”. It is not taxed in conjunction with your salary and your employer should operate code BR and deduct 20% tax from the lot. You will then have to meet any higher rate liability after the end of the tax year.
As you are negotiating voluntary redundancy I really suggest you clarify this with your employer. If he is fully up to speed on PAYE he will already know that. If he isn’t and gets this wrong he will take far too much tax off you, you will have the devil’s own job trying to get the excess back. Your, then, former employer will say its nothing to do with him as he’s paid the tax to HMRC. HMRC will say its nothing to do with them until they get the end of year paperwork.
3 Points
1) In theory, leaving on 5 April should work. If I were in your shoes I wouldn’t cut things so fine. I would leave some time after 6 April just to make it clear cut.
2) If PAYE is operated correctly then you will definitely owe higher rate tax on a fair old chunk of your redundancy payout but that will not be payable by you until 31/1/2011. You need to ensure that you have the funds available by then.
3) Whilst the £100,000 is a negotiated settlement you still need to analyse how it is made up.
Take a look here http://www.hmrc.gov.uk/manuals/eimanual/EIM12855.htm
And here http://www.hmrc.gov.uk/manuals/eimanual/EIM12856.htm