Tax on Redundancy Payment

martello1

I am taking voluntary severance on 30th April 2011. In late May I will receive PILON of two and half months pay and then in mid-June I will receive my actual severance payment. My April pay and PILON will amount to about £14k and my gross severance payment will be approx £90k. I understand that the first £30k of the latter is tax and NI free but can anyone tell me how the balance will be taxed?

Also, I am a 40% tax payer normally and will obvious pay an element of 40% on my pay and PILON but these earnings will only amount to £14k, well short of the 40% threshold. Will I be able to claim tax back at the end of the year if I do not work the rest of next tax year?

getmore4less

This is all next tax year.

So £14k real pay(tax and NI due on these)
£30k tax free
£60k taxable at marginal rate(consider/research pension contributions, even think about maxing out this years as well if 40%)

So taxable earnings £74k
http://www.hmrc.gov.uk/rates/it.htm
£7475 tax free
£30000 @20% so £6k
£36525 @ 40% so £14610

BUT there are new rules for taxing this severence so you will probably end up paying a lot more tax out initialy a big chunk at 50% and have to claim it back.

Read up how the P50 works so you are ready.
http://www.hmrc.gov.uk/incometax/stop-work-refund.htm
http://www.hmrc.gov.uk/pdfs/p50.pdf