Redundancy imminent - JSA and Tax questions

bjorn_toby_wilde

Hello all

I'm about to be made redundant (end of the month) after nearly 20 years in the same job. The company have an enhanced package and it was a well paid job so I can't and won't complain about my but it leaves me with a few questions.

My PILON and redundancy will take me over the 50% tax threshold for the year (I would have preferred to work my notice until April so the redundancy payment would be into the 2012/13 tax year but the company wouldn't agree to it for their own reasons). A shame because I reckon it's cost me about £10K in extra tax.

The questions are:

1) If I can't find work in the next financial year (it's pretty bad out there as we all know) will I be able to claim back any tax or is that money gone because it was paid in 2011/12?

2) I understand I can claim contributory JSA. Presumably that will be taxed at 50% for the next couple of months and I don't really want to claim it if I don't need to. Is there any reason why I should (or must) sign on (getting my stamp paid, etc) or would I be better off not claiming until I do really need the JSA? Presumably when I get past the 5th April it won't be taxed at the top rate.

I would feel bad about claiming benefits that I don't need but I'm concerned that I might be breaking the rules by not signing on.

Thanks in advance for your help

Bjorn

P.S. On the positive side I've been a fervent mortgage free wannabee for years and I'm two days away from getting there!:j

Victor_Meldrew

You're in the same position as I was last summer and I asked those questions too.

1. You will be able to reclaim any overpaid tax at the end of the tax year. You will have been overtaxed because of new regulations.

2. If you claim contribution-based JSA you will not be taxed on it UNTIL you declare it at the years end when it will be taxed at 50%. It is treated as income so you would add up all your income for the year (including redundancy money) and then they will work out how much tax you should have paid and adjust accordingly. If you don't claim JSA straight away you will break your run of paying NI contributions and so when you do claim you will not get the full amount.

Don't feel bad about claiming JSA - you paid NI so you're entitled to it even if you don't need it (and you're being taxed 50% on it so it's not like you're even getting the full amount).

agrinnall

I don't think Victor's reply to point 1 is entirely correct.

You can't reclaim income tax for a previous year simply because you don't earn in the next year. That's not to say there may not be a reclaim made in 2012/3 when you submit your tax return but it won't be linked to your 2012/3 earnings.

I can't find any definitive information on point 2 but I thought I had read a thread on here recently that described how NI contributions during a year are calculated for benefit purposes which suggested that you might not have to contribute for the entire year to actually be regarded as having a full year's contributions, so it may be possible that you could delay your claim until April to get the full amount for 6 months, if you need it - but please don't rely on what I say.

Victor_Meldrew

I think you misunderstood me. You can claim for last year ie the year you were paid your redundancy in. This is because your redundancy is treated as salary for that month and taxed as if your salary is 12x that amount! So you will nearly always overpay when you are made redundant (the larger the redundancy the more you will overpay). It is this tax you can claim back.

You may be right on the second point though but trying to find out from either the website or by phoning is just a waste of time because noone seems to know. I have come to the end of NI based JSA but have been told to carry on claiming for NI contributions as I will be able reclaim NI based JSA again in 6 months because my contributions will be based on 2010/1 and 2011/2. But if I stop I won't be able to reclaim. The same office also told me this was not true but couldn't find anyone able to verify it either way.

Typical useless government department.

agrinnall

Yes, you're right, I think I did misuderstand you, it looks like we are both saying the same thing on point 1. As for point 2, I imagine you are correct although presumably there is a manual somewhere that does contain the relevant rules, which of course is not the same as anyone actually understanding it!

SarEl

Err... if the PILON isn't contractual, and if that and the redundancy payment amount to less than £30k, then they are tax free allowances. If they come to more than that then tax is only due on the balance. So are you sure they will take you over the threshold? It would be an awfully well paid job and an awfully enhanced package to amount to that much over the threshold in the next three months!

getmore4less

One you get to grips with the payments and the tax situation.

Review pension payments for all taxable pay over 40% and 50%(over £150k in the tax year).

Put in a P50, that may sort out the overpayment of tax for this tax year quicker than waiting till year end.

Delay claiming JSA till next tax year.

eamon

You must register the next second after being made redundant. JSA is your right and if you don't claim it then you miss out on potentially lots of benefits. Don't feel guilty about exercising your rights (though of course it is equally your right not to claim). Perhaps the most important thing is that it keeps your NI record on the straight and narrow.

LittleVoice

eamon wrote: »

You must register the next second after being made redundant. JSA is your right and if you don't claim it then you miss out on potentially lots of benefits. Don't feel guilty about exercising your rights (though of course it is equally your right not to claim). Perhaps the most important thing is that it keeps your NI record on the straight and narrow.

My view would be that there is no point in claiming JSA for February and March if you don't need the cash if it means you pay 40% or 50% tax on it, when the following year, if things do not go as well as one would hope, it could be taxed at 40% at most and possibly just 20%.

Other benefits which someone claiming JSA can receive would take into account savings and any partner's earnings so I would guess this wouldn't really be an issue for the OP for those two months.

SarEl

LittleVoice wrote: »

My view would be that there is no point in claiming JSA for February and March if you don't need the cash if it means you pay 40% or 50% tax on it, when the following year, if things do not go as well as one would hope, it could be taxed at 40% at most and possibly just 20%.

Other benefits which someone claiming JSA can receive would take into account savings and any partner's earnings so I would guess this wouldn't really be an issue for the OP for those two months.

But they get no NI credit, and as I undertand it, although willing to be corrected, they can't defer contributons based JSA - so they would get four months, not six months. If they have apid for the nebfit it makes sense to claim it.

LittleVoice

SarEl wrote: »

But they get no NI credit, and as I undertand it, although willing to be corrected, they can't defer contributons based JSA - so they would get four months, not six months. If they have apid for the nebfit it makes sense to claim it.

Two months NI credit for someone who is a high earner for ten months of the year probably would not affect contribution history for eventual state pension. The OP may even have sufficient contributions for full pension already.

Contribution-based JSA lasts for up to six months from the time it is claimed, not from the end of any previous employment. You don't have to claim straight away - and may want to take a holiday any way.