Beware of the redundancy tax trap!

amanda40

It is so much to take in!! Head is spinning too!!

If you are due nontaxable PILON but your redundancy pay is over £30,000, do you pay tax on non taxable amount too ( IYSWIM) Ie do they just add it on to redundancy payment .

JPA61

Of course although redundancy pay is income, it is compensation for loss of future earnings, not additional earnings (i.e. as a bonus would be) for work done.

Other countries (for instance Ireland (with its top-slicing relief), and New Zealand and Germany) mitigate for redundancy payment taking earnings for the tax year into a higher tax band. It seems that in the UK you could be working for most of a tax year before being made redundant, getting slapped with 40% tax on most of your redundancy money, and then finding yourself unemployed for the whole of the next tax year.

JPA61

Hey, you haven't been working for a certain IT service provider have you?

I was made redundant together with several of my team-mates yesterday (11th December) too.

amanda40

JPA61 wrote: »

Hey, you haven't been working for a certain IT service provider have you?

I was made redundant together with several of my team-mates yesterday (11th December) too.

I think it may have been;)

amanda40

jimmo wrote: »

I can really appreciate that your head is spinning with this. It is hard enough for those of us who have professional experience to analyse individual cases.
All I can suggest is that you take your time and if your head is spinning, take a break, relax and come back to it when your head is clear.
I hope this doesn’t sound too pedantic but there is no such thing as non-taxable PILON. PILON is taxable as are all other redundancy payments. However you do get one, single exemption for the first £30,000 of the compensation elements in the redundancy package.
So, no matter what the circumstances, the best a person can hope for is that £30,000 of the redundancy package will be free of tax.
I think that answers your question. If it doesn’t please say so and I will try again.

Yes thanks i think my questions are answered now. I work for HMRC and have problems trying to figure it all out.:T

amanda40

No perks in HMRC nowadays I'm afraid - I am a lowly RO or assistant officer ii think we are called now - it is all my grade in my area, so dont have contact with any one I could ask.