First 30k tax free

Ewarwoowar2

Payment of notice in lieu of notice may be taxed. It is not as simple as stated by other posters above.

In general, contractual payments i.e. payments you're entitled to under your contract of employment are taxable. Therefore, if your contract of employment states that a payment in lieu of notice can be made, then the payment is potentially taxable.

If the contract is silent about making such a payment or it states that payment in lieu is not allowed, then it is a breach of contract to pay the notice as a lump sum, as the contract technically requires you to work your notice. Therefore, a lump sum notice payment is outside of the contract of employment and potentially tax free (if the whole tax-free package is under £30k)

Hastobe_Katt

I did specify that PILONS are taxable when they are provided for by contract either explicitly (in the terms) or implicitly (by behaviour). Clearly if the contract doesn't provide then the nature of the payment needs to be determined before taxable status can be agreed.

As I said to the OP - he needs to take advice from a professional (either employment solicitor, employment tax specialist or similar.)

zzzLazyDaisy

KingLarsson wrote: »

thanks sammyjammy

this is what my work said regarding my payoff:

"I don't have any of the formal paper work, all we are given is the amounts to pay, which are shown below. I've an email HMRC regarding Capitalised Payments which is for our use only but basically states that these payments do not form part of a formal redundancy package and should therefore be taxed.

Compensation £***** - All tax free, this is 6 month salary.
Capitalised £***** - All taxed"

This looks to me as if the Capitalised Payment part of the lump sum is being treated by HMRC as a contractual entitlement and not part of a tax free severance package. We don't have access to OP's contract of employment or the rules of the scheme that gave rise to this capitalised payment, so we don't have sufficient information to comment in any detail, on OP's particular situation.

However, in very basic terms - if an employee is contractually entitled to receive a payment on termination of employment (be that a PILON, or some other contractual right to severance payment) then this will always be taxable and will fall outside the £30k tax free severance allowance. This is why so many redundancy schemes are expressly stated to be discretionary (and even thaty is not cast iron, since if they are applied often enough, they may be deemed contractual by virtue of custom and practice)

BoxerfanUK

Can anyone tell me........ If made redundant I understand the first 30K is tax free, but what about any amount over 30K? Is it taxed at a fixed flat rate (20%) or is it classed as earnings and therefore taxed at 40% once you reach the threshold.

getmore4less

Gets added to your income for the tax year it is paid.

philcro

This is all very complicated.Myself and another 149 people will be made redundant on 29th of April.Becuase of the length of service most of these people have put in,our redandancy payments will be just over £100,000.
We have found out the first £30,000,is tax free.
Then 20% on the next £38,000.
Then 40% on the rest.
Could anyone please advise to these facts,and clear up a lot of rumours?

KingLarsson

thats what happened to me but i didnt get the first £30k tax free, only my 6 months pay compensation payment.

getmore4less

philcro wrote: »

This is all very complicated.Myself and another 149 people will be made redundant on 29th of April.Becuase of the length of service most of these people have put in,our redandancy payments will be just over £100,000.
We have found out the first £30,000,is tax free.
Then 20% on the next £38,000.
Then 40% on the rest.
Could anyone please advise to these facts,and clear up a lot of rumours?

Looks about right and if you get another job that will all be taxed at 40% uptill the new higher rates kick in.

I expect you might want to take a year off.

bristol_pilot

That is correct. The £30k limit has not been increased for many years and is now not worth what it once was. A year off may be the best thing.

You may, however, be able to convince your employers to make a £30k payment in the current tax year and the remainder after 6th April 2011. That way you might get two lots of tax-free £30k. Failing that, maybe they would defer £30k to be paid after April 2012. This used to work, but I'm not sure if the loophole has been closed in recent years.

Or you could see if they would pay some of it into a pension fund instead. It would then be tax-free but subject to the new £50k limit on pension contributions afetr April 2011 and of course you couldn't touch the money until you reach a certain age.

cash99

bristol_pilot wrote: »

A year off may be the best thing.

Why? I don't think there are any scenarios where the tax paid is greater that the income received. You may pay more tax but you would definitely be better of at the end of the year if you worked.

You may, however, be able to convince your employers to make a £30k payment in the current tax year and the remainder after 6th April 2011. That way you might get two lots of tax-free £30k. Failing that, maybe they would defer £30k to be paid after April 2012. This used to work, but I'm not sure if the loophole has been closed in recent years.

This can be done, but you will only get £30k tax free in total. The benefit is that you may pay less tax by having the large taxable amount spread over 2 years.

Generally redundacncy payments are paid after employment has ended in which case only 20% tax will be dedcuted from the total amount. If the taxable portion of the payment puts you into a higher rate band then this tax will need to be paid through self assessment.