Redundant and pay-off

mighty_rhinos

Hi all,

Looking for some advice if possible.

I was made redundant with immediate effect yesterday. No pre-warning or anything, I turned up for a regular 1-to-1 review with my manager at head office to be told in front of a witness that my position was redundant.

Given I have been there for 21 months, officially I receive no redundancy payment. However, company is letting me keep company car til end of month and paying 3 month salary as "gesture of goodwill."

I got a letter today confirming the above. I understood redundancy payout below £30K is tax-free. However my letter says my final pay will be 31st July (normal pay day) and all payments will be subject to tax and national insurance.

Does this mean the pay-off they are giving me is not tax-free, or is it not official redundancy as I was under 2 year employment so tax applies?

I think the car and 31st May pay day is due to my sales job. They should give me 1 month notice by contract, but in sales position, so immediate effect and laptop/phone whisked away, escorted off site etc.

Any thoughts on the tax-free or not tax-free aspect?

Thanks

bryanb

mighty_rhinos wrote: »

Hi all,

Looking for some advice if possible.

I was made redundant with immediate effect yesterday. No pre-warning or anything, I turned up for a regular 1-to-1 review with my manager at head office to be told in front of a witness that my position was redundant.

Given I have been there for 21 months, officially I receive no redundancy payment. However, company is letting me keep company car til end of month and paying 3 month salary as "gesture of goodwill."

I got a letter today confirming the above. I understood redundancy payout below £30K is tax-free. However my letter says my final pay will be 31st July (normal pay day) and all payments will be subject to tax and national insurance.

Does this mean the pay-off they are giving me is not tax-free, or is it not official redundancy as I was under 2 year employment so tax applies?

I think the car and 31st May pay day is due to my sales job. They should give me 1 month notice by contract, but in sales position, so immediate effect and laptop/phone whisked away, escorted off site etc.

Any thoughts on the tax-free or not tax-free aspect?

Thanks

Sounds taxable as it's not a redundancy payment.

maninthestreet

It's not PILON, it's a payment as compensation for losing your job, so maybe it should be tax-free. Check with your HRMC on this, as it will be them who will have the final say whether this payment should be taxed or not.

1984ReturnsForReal_2

The car is part of your package & you are allowed to keep it until the end of your notice period anyway (or be compensated).

As for 3 months pay, one is notice which is taxable & only 2 are the redundancy payment.

Not sure what the tax implications of these 2 months are.

Wait for an expert or call one.

THRIFTY_GIRL

1984ReturnsForReal wrote: »

The car is part of your package & you are allowed to keep it until the end of your notice period anyway (or be compensated).

As for 3 months pay, one is notice which is taxable & only 2 are the redundancy payment.

Not sure what the tax implications of these 2 months are.

Wait for an expert or call one.

If you were not contractually entitled to the 2 months pay then this is a tax free payment. If you have had tax deducted I suggest that you contact your tax office to claim a repayment of tax - unfortunately you may need to wait until the end of the year to get the tax back though.

If your employer has not yet issued your P45 then they should be able to make the payment tax free. HTH

Pete111

Assuming you have a 1 month notice period then the 1st month is a payment in lieu of this and taxable. For the other two months I would argue strongly this is an ex-gratia, termination payment (effectively a 'company' redundancy payment) which is not likely to be considered taxable by HMRC.

If the payment is not due to be made until later this month I would seek clarification from HMRC (as suggested already) and then inform the company asap should they agree with this premise that tax should not apply. It would be far preferable to have the company agree to pay you the money for these two months before tax than having to chase the IR for the difference - they can be a nightmare.

The company may not wish to do this but it is worth trying to convince them - Perhaps remind them they will have to pay employers NI on any payments not made as redundancy/ex gratia and there really is no need!

Good luck

Atelier

Pay in lieu of notice is obviously taxed because you are being allowed to stay at home instead of coming to work during your notice period.

I believe any additional payments made might be taxable depending upon how the company treats them.

If it has a redundancy policy defined within your contract of employment then any values specified here would be tax free and any above and beyond those specified would be taxable.

e.g. if your contract of employment specifies that you will get just the statuatory redundancy pay then this ex-gratia payment will be taxable.

THRIFTY_GIRL wrote: »

If you were not contractually entitled to the 2 months pay then this is a tax free payment. If you have had tax deducted I suggest that you contact your tax office to claim a repayment of tax - unfortunately you may need to wait until the end of the year to get the tax back though.

If your employer has not yet issued your P45 then they should be able to make the payment tax free. HTH

mighty_rhinos

Thank you all for your replies. I just checked my contract and there are no sections at all about redundancy payments. One note about termination which says "we reserve right to payment in lieu of notice."

The company line during meeting, and in confirmation letter, is that they follow Government legislation and I am not entitled to redundancy payment - which is correct for 21months employment.

If I call the number on my latest tax code letter for HMRC will they be able to advise or should I ring a specialist dept?

Thanks again.

1984ReturnsForReal_2

Just ask your employer if they are going to be taxing the 2 months money & you have to claim it back of HMRC or not?

It costs them more to deduct tax as the also have to pay Employers National Insurance (this doesnt show on your pay slip, its a cost to them) as Pete says.

Forget about the word "redundancy", its just a word.

Spirit_2

It sounds as if your employer has made a redundancy payment under non-statutory schemes and arrangements. It does however meet the definition of redundancy recognised by HMRC.


Redundancy payments
Redundancy is defined by the Employment Rights Act 1996, s. 139 as follows:
‘For the purposes of this Act an employee who is dismissed shall be taken to be dismissed by reason of redundancy if the dismissal is attributable wholly or mainly to:

1. the fact that his employer has ceased, or intends to cease, to carry on the business for the purposes of which the employee was employed by him, or has ceased, or intends to cease, to carry on that business at the place where the employee was employed; or
2. the fact that the requirements of that business for employees to carry out work of a particular kind, or for employees to carry out work of a particular kind in the place where he was so employed, have ceased or diminished or are expected to have ceased or diminish.’

This definition is adopted for tax purposes

Where an employee loses his or her job as a result of redundancy (as defined above) or because the task that the employee was engaged to work on has been completed, a payment may be made on termination. Such payments are usually labelled ‘redundancy’ or ‘severance’ payments and may be statutory or non-statutory.

"Genuine redundancy payments are taxable under ICTA 1988, s. 148, rather than ICTA 1988, s. 19, even if there is a contractual entitlement to the payment. Consequently the £30,000 exemption is applied. It should be noted that while statutory redundancy payments are exempt from tax under Sch. E, they do fall within the scope of ICTA 1988, s. 148 and need to be taken into account when applying the £30,000 exemption. The exemption applies only once in respect of a termination and all relevant elements of the termination package should be added together before applying the exemption. "
In this case as others have said the PILON is taxable the other two months would be tax free as described above. I had to sort out a tricky termination recently when away from work and found the above on the web (sorry I have lost the link) , it helped me frame a suitable letter. When payroll checked with local HMRC they confirmed it as non taxable.

As time is on your side, I would take the advice others have given to check it with your own tax office, but the quote above may help you to frame your enquiry.

Good luck

Spirit

kiddy_guy

mighty_rhinos wrote: »

Hi all,

Looking for some advice if possible.

I was made redundant with immediate effect yesterday. No pre-warning or anything, I turned up for a regular 1-to-1 review with my manager at head office to be told in front of a witness that my position was redundant.

Given I have been there for 21 months, officially I receive no redundancy payment. However, company is letting me keep company car til end of month and paying 3 month salary as "gesture of goodwill."

I got a letter today confirming the above. I understood redundancy payout below £30K is tax-free. However my letter says my final pay will be 31st July (normal pay day) and all payments will be subject to tax and national insurance.

Does this mean the pay-off they are giving me is not tax-free, or is it not official redundancy as I was under 2 year employment so tax applies?

I think the car and 31st May pay day is due to my sales job. They should give me 1 month notice by contract, but in sales position, so immediate effect and laptop/phone whisked away, escorted off site etc.

Any thoughts on the tax-free or not tax-free aspect?

Thanks

What about consultation processes? Anyone? Surely they should have followed this process. Also the OP is getting PILON to cover the notice period, but what about the payment for being made redundant. It sounds like the employer is paying the OP for their notice period, but not for the redundancy?