Amount of Tax (deductions) on Redundancy Pay

GazNicki

I am being made redundant sometime in May, and am trying to calculate my Redundancy payout.

What is the Percentage of Tax that I will pay on my Redundancy payment? I am not a high earner, so I am not in the "SuperTax" bracket, but would like to know what the Tax Rate will be.
Also, will there be any other stoppages, I.E. will NI be deducted also, and will Pension be deducted too??

dampsquib

Basically, your employer can give you up to £30,000 tax free. but will deduct 20% off the rest of your termination payment. NI won't be due on the Termination Payment (nor should there be any pension deductions). If you should receive a "Payment In Lieu Of Notice" payment too (a PILON), this will probably taxed as normal income, so you would pay NI & tax on it. PILONs are taxed as normal income where there is a contractual right to the PILON, or if it is normal custom and practice in your company to pay a PILON in the circumstances.
Should the Termination payment cause you to become liable to tax at higher rates, HMRC would come looking for their cut later.

zaksamjosh

Hi can anyone help I am being made redundant 31st march 2011. I have been told that the 1st £30k is tax free but the anything after that is taxed at 40%. However I have also been told that if my employers pay my payout after I have left - i.e. as an ex employee then my tax on anything over £30k is only 20%. I have asked my employer to pay my payout 1 month after I have left their employment but they say they cannot as the tax man 'won't' like it. I need to find out if this is a genuine option and if so know where can I find more details to print off to give to my employers.

P.S. My empolyers have said I have until the 24th November to accept their offer otherwise I will lose the package they are offering - it's a minefield and I have very little time to make a decision.:eek:

dampsquib

Where an employer pays the compensation after you have left (in your case whether it be 1st April or 1st May, say) they are instructed to give you credit for the £30,000, then tax the rest at basic rate (ie: 20%). What is actually due, depends on your overall tax position for the year in which the money is paid. The 20% could turn out to be just right. Alternatively, if you have spare allowances, the 20% might be too much, in which case you would be due a refund. Or, if the compensation (when combined with any other income) causes you to be liable to 40% tax on some of your money, HMRC would come looking for their extra cut later.

dampsquib

Forgot to add ....
Employer may have other reasons for wanting to pay you off promptly and not delay the payment into April. For example, does their financial year end on 31st March?