Tax on redundancy payment ...

Unbelievable_2

As I understand it, any PILON and holiday payments will be liable to tax as normal. The first £30000 of a (true) redundancy payment is tax free. So as eg. if you got a payment of £32000, where 2000 was PILON and 1000 was holiday pay you would get 29,000 tax free, the other 3000 would be taxed.

crumpsall

I was made redundant a couple of years ago. The final settlement was covered by a Compromise Agreement which involved a lump sum + continuing private health cover until what would have been my expected retirement age.

The total package was worth less than £ 30k (and therefore not subject to tax) in the first tax year and I assumed that the continuing health cover would be non-taxable too. The relevant clause from the agreement reads:-

The Company and XXXXXX believe that the Termination Payment and the payment in kind (BUPA) are payments to which exemption from tax pursuant to Sections 401 - 403 of the Income Tax (Earnings and Pensions) Act 2003 shall apply to the first £30,000 (Thirty Thousand Pounds) and is thus, to the limit set out by Statute/Regulation, free of tax. However, the Company acknowledges and agrees that it will indemnify XXXXXXX in respect of any Income Tax or National Insurance liability which may arise on the payments up to £30,000 (Thirty Thousand Pounds). Therefore £YY,YYY.00 (YY Thousand Pounds) and the BUPA benefits will be paid without deduction.

I have now been advised by the Company that as the total value of the lump sum + 19 months health ‘Benefit in Kind (Bik)’ exceeds £ 30K, the continuing Bik will be declarable and therefore taxable at my marginal rate. Re-reading the above, it does appear to be correct, but I would be grateful for confirmation that the £ 30k limit is enduring, and does not, as I had assumed, re-set for subsequent tax years.

fengirl_2

The £30k is not an annual exemption, but just relates to each individual redundancy sitaution.

Money_Grabber13579

You shouldn't be taxed on the value up to £30k, however anything thereafter, will be at the marginal rate, as the company states.

Bluebirdnick

Money_Grabber13579 wrote: »

You shouldn't be taxed on the value up to £30k, however anything thereafter, will be at the marginal rate, as the company states.

My understanding is that it is a bit more complicated than that. I thought that any contractual right to redundancy pay is taxed, as is any redundancy pay that is not strictly a contractual right, but the employer has a history of paying and is therefore expected.

Am I wrong? It is just as simple as ignoring the first £30k of ex gratia payment?

EDIT: sorry, just seen the post with the employer giving the indemnity.

canadiangirl78

The employer's indemnity means nothing, if HMRC decide the payment is taxable (ie contractual) then it is taxable. However if the employer agrees to pay any tax that migth arise the taxpayer is at least kept out of it. It is getting more and more rare to see companies doing this so please check- many just say 'The company BELIEVES that this payment can be made tax free' and is not explicitly saying that it will pay any resulting tax.

MsAnderson

I am slightly confused. I take it PILON doesn't always refer to redundancy. In my case, I have been made redundant, and I am expecting a PILON in the next week. It will contain PILON & a pro rata bonus.

My last day in the office was 29 May, but I am getting a payment to 30 June. I'm not working that period so is my payment taxable? There is no mention of tax liability in my contract. I have read many posts in this thread and the redundancy thread, but still none the wiser.