Tax payable on redundancy

Dicanio3

I realise there are lots of other posts regarding tax and redundancy but I'm still left unsure what rate of tax I will have to pay for an amount of redundancy pay over £30k.

I am a basic rate tax payer with an annual salary of £26,000.

I will be made redundant at the end of September after 30 years service.

My redundancy package (statutory & employer) is £56,000, this does not include lieu of notice payment which will be a further 3 months pay.

Will this lift me into the higher tax band?

Debt_Free_Chick

Your redundancy alone will probably not lift you into the higher rate band. You will have received 6 months of your annual salary (£13k). The first £30k of your redundancy will be tax free and the remainder (£26k) will be taxed as "income". Add this to your salary and you will have £39k gross year to date.

However, your pay in lieu of notice has to be added, so you may end up being a higher rate taxpayer.

Ignoring all the above, HMRC's tax tables may well tax you at 40% on a slice of your income when the taxable redundancy payment is made. If not, then it might when the PILON is paid.

Whatever happens, you are only liable to pay the tax you are due to pay. If a higher amount is collected when you're paid - if it's not due, you can claim any overpayment back at the end of the tax year (5 April 2011). If you get another job, the tax collected in the future will be adjusted to take account of any overpayment already made.

Dicanio3

Thanks Debt_free_chick

Also, if and when I get another job, in this tax year any earnings, no matter how small the salary, will be taxable at 40% because of my redundancy payment?

Debt_Free_Chick

Dicanio3 wrote: »

Thanks Debt_free_chick

Also, if and when I get another job, in this tax year any earnings, no matter how small the salary, will be taxable at 40% because of my redundancy payment?

It depends. But even if the tax collected via PAYE is more than you are due to pay, any excess tax paid will be refunded; either via PAYE or via a claim to HMRC at the end of the tax year.

Here's the "golden nugget" ... you only have to pay the tax you are due to pay. If too much tax is deducted, the excess will be refunded. But you may have to make a claim for that refund.

getmore4less

3/4 £26k + £26k is £45k so just into the 40% (£43750).

Do a P50 and take the rest of the tax year off, even JSA will be taxed at 40%
Consider topping up the pensions

Go away for the winter somewhere nice after 30y you probably need a break.