Question about tax on redundancy payment

wallpaperman

Hi,

Was wondering if anyone could give us some general advice about tax on a redundancy payment.

My wife recently took voluntary redundancy at the end of her maternity leave. The pay off was in excess of £30K and we know that this part is tax free, with tax being due on the rest. Her final payslip agrees with this.

However, the PAYE deducted seems too high, but her (ex) employer are not being too speedy at responding.

Will her overall tax position be the same as anyone else's?

IE, she will get her personal allowance, then up to £37401 will be at basic rate and anything over this is 40%?

Or is there something different we are missing with regards to tax on the redundancy payment over £30K?

Bobl

Have a look at this: http://www.tltsolicitors.com/docs/redundancy_payments_1.pdf

getmore4less

The issue is that the excess is done like PAYE so can be taxed at a higher rate at time of payment dending on the size of the payments so far in the year. there should b no extr NI unless some of hte payments is for the notice period and holiday pay accrued during maternity which is normaly fully taxable and NI


There is a way to get this back look up HMRC P50, this must be done before JSA or a new job

End of year the tax situation should resolve itself if claiming JSA or in a new job, if not ask the tax man what they want, self assesment return or a short form

getmore4less

Bobl wrote: »

Have a look at this: http://www.tltsolicitors.com/docs/redundancy_payments_1.pdf

That document is undated so no way to tell if it is still valid.

The tax treatment of reduncancy was changed recently

dori2o

Was the payment made AFTER the P45 was issued. If so it is a 'Payment after leaving, and so it is taxed using the tax code 0T on a non-cumulative basis.

Therefore the first £2916 will be taxed at 20%, the next £9584 will be taxed at 40% and the remainder will be taxed at 50%.

If it was paid with the final salary and is included on the P45, then depending on the size of the payment it may well have taken your wifes income into the 40% or 50% tax band based on what has been earned to this point in the year.

If she is not going into further employment and not claiming JSA, complete a P50 and send with it the P45, and if the payment was paid separately (i.e. after the P45 was issued) also include the payslip for that payment and a copy of her employment contract. Also include a letter to explain you wish to reclaim the overpaid tax from redundancy.

If you wife is going into further employment, or is going to claim JSA, then you will need to wait for the end of the tax year to make the claim.

Pete111

dori2o wrote: »

Was the payment made AFTER the P45 was issued. If so it is a 'Payment after leaving, and so it is taxed using the tax code 0T on a non-cumulative basis.

Therefore the first £2916 will be taxed at 20%, the next £9584 will be taxed at 40% and the remainder will be taxed at 50%.

If it was paid with the final salary and is included on the P45, then depending on the size of the payment it may well have taken your wifes income into the 40% or 50% tax band based on what has been earned to this point in the year.

If she is not going into further employment and not claiming JSA, complete a P50 and send with it the P45, and if the payment was paid separately (i.e. after the P45 was issued) also include the payslip for that payment and a copy of her employment contract. Also include a letter to explain you wish to reclaim the overpaid tax from redundancy.

If you wife is going into further employment, or is going to claim JSA, then you will need to wait for the end of the tax year to make the claim.

Doritos advice is sound and details exactly why the tax is high.

As another poster points out however, HMRC has changed the rules on redundancy/notice payments recently (April) My understanding is that it is now much harder (if not impossible) to arrange anything over 30k to be paid at Basic rate. Which means a lot more people are going to be unfairly shouting at their HR/payroll people and then having to claim a rebate!

wallpaperman

dori2o wrote: »

Was the payment made AFTER the P45 was issued. If so it is a 'Payment after leaving, and so it is taxed using the tax code 0T on a non-cumulative basis.

Therefore the first £2916 will be taxed at 20%, the next £9584 will be taxed at 40% and the remainder will be taxed at 50%.

If it was paid with the final salary and is included on the P45, then depending on the size of the payment it may well have taken your wifes income into the 40% or 50% tax band based on what has been earned to this point in the year.

If she is not going into further employment and not claiming JSA, complete a P50 and send with it the P45, and if the payment was paid separately (i.e. after the P45 was issued) also include the payslip for that payment and a copy of her employment contract. Also include a letter to explain you wish to reclaim the overpaid tax from redundancy.

If you wife is going into further employment, or is going to claim JSA, then you will need to wait for the end of the tax year to make the claim.

Many thanks for all the replies to my question.

The payment was made with her final month's salary so is included in the P45 figures.

As our wee one is 7 months old the plan is for my wife to take further time off so she won't be earning any more before 5 April 2012 and wasn't intending to claim JSA. I will therefore get her to look at the P50 form.

Thanks again.