severance package

muddle9

I recently agreed to reduce my working week by half my hours, going from 1FTE to 0.5FTE. My employers offered me a severance package to effectively buy my hours from me. The amount was for £14,000. Should I pay tax on this? Any feedback would be gratefully received.

Peanutmac30

As far as I know you do pay tax on redundancy pay, which is effectively what this is.

Jarndyce

Peanutmac30 wrote: »

As far as I know you do pay tax on redundancy pay, which is effectively what this is.

Wrong on both counts.

On the basis of the little information we have we cannot say whether this is a redundancy payment, and you do not pay tax on the first £30,000 of a redundancy payment anyway.

Whether this payment is taxable depends on precisely how it was processed. If for example you were made redundant from your full-time post and then taken back on as a part-time worker, it would be tax free.

Also if it was paid as compensation for breach of contract and/or as part of a compromise agreement it would be tax free.

But if it was for example handled as a dismissal and the payment was for pay in lieu of notice, that could be taxable.

So has it already been paid and if so how was it wrapped up? Or if it has not yet been paid, look at one of the tax-free options above.

It is however the employer's obligation to get this right, and if they get it wrong it will be from the employer that HMRC seeks to recover the money.