Redundancy payment and tax

suebfg

Can anyone help?

My husband is being made redundant and his employer is looking to phase his redundancy payments. The payments comprise statutory redundancy payment and payment in lieu of notice. They've told him that if they phase payments, the payment will be tax free. If they have to pay it in one go, they will deduct PAYE and NICs.

Furthermore, the phased payments will go over the Financial Year so my concern is that he will have to report the payments in two Financial Years and even though the company are saying it will be tax free, he might still be liable for tax when he does his Self Assessment returns.

It doesn't stack up to me and sounds like they're trying to force him to accept phased payments - any views out there?

suebfg

Can anyone help?

ermine

Redundancy payments of up to £30k are tax and NI free. Payments over that are taxable, in the year they are paid.

If you will be getting redundancy payment of > 30k then there is a case to be made for spreading the excerss payment over the next coiuple of years. Say he took 30k now, and were paid 7k next year and 7k the next. If he didn't work and had no other income for the next two years, the total payment would be tax free as 7k is less than the personal allowance. Whereas if he were paid the lot this year he might be pushed into higher rate tax if he isn;t there already by the 14k being added to what he's earned so far this year.

The simplistic description by the employer (and definitely if the RP is <30k) would imply to me that these are dodgy geezers and I'd take what I could get now. But they are correct in the case that the RP > 30k, they are lying sacks of ordure if it is < 30k. You haven't given enough information to call which it is. They are lying sacks inasmuch as RP is not liable for NICs, wave a copy of this from HMRC under the relevant party's nose. And PILON or holiday pay is liable for NICs because they're earnings, but the rest isn't and makes me wonder if they are pulling a fast one.

getmore4less

Why would you want to keep financial link with the company?

What if they cant't or don't pay?

Ask them to fully indemnify all potential tax liabilities.


How much money are we talking about?

Statutory redundancy is a maximum of (£430*20*1.5) £12900 well below the £30k tax free limit and that is with 20 yrs service over 41.

Holiday pay is taxable but PILON may not be if not contractual or custom and practice.

suebfg

The payment is less than £30k and comprises the following elements:

statutory redundancy pay
pay in lieu of notice
accrued holidays

My understanding is that statutory payment is not taxable and holiday pay is taxable. It's the pay in lieu of notice where I'm unclear and the employer seems to be suggesting that they can deduct tax or keep it tax free at their option. This sounds wrong to me.

suebfg

I should clarify that the employer hasn't reserved the right to make payment in lieu of notice in the contract of employment.

mildred1978

suebfg wrote: »

The payment is less than £30k and comprises the following elements:

statutory redundancy pay
pay in lieu of notice
accrued holidays

My understanding is that statutory payment is not taxable and holiday pay is taxable. It's the pay in lieu of notice where I'm unclear and the employer seems to be suggesting that they can deduct tax or keep it tax free at their option. This sounds wrong to me.

The PILON will most likely be taxable.

suebfg

See above, the employer hasn't reserved the right to make payment in lieu of notice so I think that is classed as compensation and is therefore not taxable. Is that correct?

getmore4less

suebfg wrote: »

See above, the employer hasn't reserved the right to make payment in lieu of notice so I think that is classed as compensation and is therefore not taxable. Is that correct?

Thats correct, but the employer does not have to pay gross pay they can pay net pay, which is what you would have got paid anyway.

I don't see any benifit in staged payments.

suebfg

My understanding (which may be wrong) is that if it's part of the compensation package, then it should be tax free. After all, surely the HMRC decide whether tax is payable or not, not the company - what does it matter to the company if they deduct the tax or not? It's not like they can legitimately keep the tax.

Am I missing something?

Re the staged payments, this is purely for the benefit of the employer. We're not happy about it at all.

getmore4less

suebfg wrote: »

My understanding (which may be wrong) is that if it's part of the compensation package, then it should be tax free. After all, surely the HMRC decide whether tax is payable or not, not the company - what does it matter to the company if they deduct the tax or not? It's not like they can legitimately keep the tax.

Am I missing something?

Re the staged payments, this is purely for the benefit of the employer. We're not happy about it at all.

YES

COmpensation for lack of noyice can be part of the compensation package that is tax free BUT that compensation does not have to be gross pay it can be the equivilent of the net pay(and benifits).

The entitlement ot compensation is not gross pay.

You can try to negotiate but looks like the company is clued up on this partucular area of compensating for loss of notice.