Early Retirement

valio247

Hi,
I am currently full time employed in a fairly well paid job, 56 years old but I have been thinking about possible early retirement towards the end of 2012 for the past few months although my employer is not aware of this. Last week my employer approached me and made an offer of £25,000 to leave within the next few weeks as they are looking to reduce staffing over the next 18-24 months. I consider this a fairly generous offer but I will be attempting to negiotiate a slightly higher figure as I know that with my salary and pension contribution it currently costs my employer approx double this figure per annum to employ me.

My main question is - are these arrangements subject to the same tax rules as redundancy payments which I believe is taxable over £30,000. However I stress this is not an official redundancy more a mutual agreement between employer & employee so I have no idea if there any official rules relating to this type of arrangement.

Any type of advice or guidance will be welcomed, especially if there is anyone who has experienced a similar situation.

xylophone

This is akin to voluntary redundancy?
http://www.findlaw.co.uk/law/employment/redundancy_rights/500467.html - might be worth a look?

kidmugsy

In any event, it might be wise to ensure that you get the cash in tax year 12-13 (i.e. after 5/4/12) so that if it is taxable it doesn't get whacked in a tax year where you had a full year's earnings.

atush

use xylo's link and check what you would get anyway and see how much more they are offering:

"If employees are entitled to statutory redundancy pay, then this will be calculated according to their length of service (continuous employment) at the company, their age and their weekly pay. However, for voluntary redundancies, employers may offer a more generous financial incentive to encourage members of staff to leave.

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• Do I qualify for redundancy pay?
  
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• Calculating your redundancy pay
  
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• Your rights if made redundant
  
  What is redundancy, and what your rights are if you're made redundant - how you should be consulted, selected and paid
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• What should I get as redundancy"

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Bigmoney2

valio247 wrote: »

Hi,
I am currently full time employed in a fairly well paid job, 56 years old but I have been thinking about possible early retirement towards the end of 2012 for the past few months although my employer is not aware of this. Last week my employer approached me and made an offer of £25,000 to leave within the next few weeks as they are looking to reduce staffing over the next 18-24 months. I consider this a fairly generous offer but I will be attempting to negiotiate a slightly higher figure as I know that with my salary and pension contribution it currently costs my employer approx double this figure per annum to employ me.

My main question is - are these arrangements subject to the same tax rules as redundancy payments which I believe is taxable over £30,000. However I stress this is not an official redundancy more a mutual agreement between employer & employee so I have no idea if there any official rules relating to this type of arrangement.

Any type of advice or guidance will be welcomed, especially if there is anyone who has experienced a similar situation.

This sounds like redundancy to me. A bit odd that they are looking to reduce staff over the next 18-24months but have asked you to go in the next few weeks. Are they hoping that staff will seek other employment and just leave within that time so they wont have to pay redundancy?

If it is redundancy pay then it will not be taxed (upto 30k), pay in lieu of notice is taxable (PILON).

It could also be classed as a compromise agreement, this has certain criteria attached i.e. you can't later sue for unfair dismissal.

You need to be clear exactly what terms are being applied.

If you are happy to leave then having it deemed as voluntary redundancy is probably the best route.

valio247

Hi,

Thanks to everyone for taking the time to respond. In reply to Bigmoney2, I 'suspect' they realise I am looking to retire end of 2012 but the offer made will still be approx 50% of what they would have to pay if I remained until end of the year. Plus there are TUPE issues which I am currently covered by especially regarding employers pension contribution - if I left they would probably promote a non-TUPE in my place and save a that way.

It would be very likely be a compromise agreement I would have to enter into and would be required to commit to certain criteria.

zzzLazyDaisy

Bigmoney2 wrote: »

pay in lieu of notice is taxable (PILON).

Not necessarily. PILON is taxable if it is a contractual entitlement. There are two ways that this can be contractual...

1 where the employers states in the contract (or employment manual/someother policy) that it reserves the right to make a payment in lieu of notice instead of allowing you to work your notice

2 where there has been a course of conduct leading to incorporation into the contract by virtue of custom and practice (in English - there have been a number of previous redundancies in the past and PILON has always been paid rather than letting people work their notice)

If neither of the above apply, then PILON is not taxable because it is legally compensation for breach of contract (failing to give adequate notice of intention to terminate the contract).

However, PILON and Redundancy payment will be combined to make an opverall severance payment, and only the first £30k will be tax free. Any balance will be taxable.

valio247

Thanks zzzLazyDaisy for the advice - however along with Bigmoney2 and your own comments, would I be right to think or 'assume' that any payment whether classed as redundancy, PILON or 'whatever'...if it is above £30K it is taxable?

zzzLazyDaisy

valio247 wrote: »

Thanks zzzLazyDaisy for the advice - however along with Bigmoney2 and your own comments, would I be right to think or 'assume' that any payment whether classed as redundancy, PILON or 'whatever'...if it is above £30K it is taxable?

Yes. For the payment to be made free of tax, it must be made after issue of the P45, and made as a post termination severance payment (in practical terms this can be done on the same day, but the lump sum severance payment should not be included in the salary paid under the P45, and should not include earnings from employment, such as salary, outstanding holiday pay etc. Any payment over and above the tax free £30,000 is taxable at the basic rate but is not subject to NI conts. If you are liable for higher rate tax, you must submit a tax return and declare the payment, and you will have additional tax to pay on the taxable element.

If you can delay termination until 6th April, you will fall into a new tax year and may avoid higher rate tax for that year (depending on your earnings for the remainder of the year.

More info here

http://www.hrlaw.co.uk/site/focus/t_is_for_taxing_termination_payments.html