Tax on redundancy payment

tartanterra

I have just been made redundant.

I have been with the company for 1 year, 11 months and as such, am not entitled to any statutory redundancy pay.

Being a decent bloke, my boss is going to give me a redundancy payment anyway. However, our accountant has told him that tax is still payable on the payment.
I was under the impression that any redundancy (statutory or not) was untaxed up to a limit of £30,000.

Who's wrong? Me or the accountant?

Thanks in advance for any help.

getmore4less

no tax on the genuine redundancy part.

get a breakdown of what they are paying you.

what date did you start,
what day were you given notice
what is your contractual notice, when did/will you finish work
are they paying PILON or re you working notice/on garden leave.

zzzLazyDaisy

As getmoreforless says, you need a breakdown of how the severance pay is calculated.

Some payments must be made through payroll and are subject to tax and NI in the normal way - the main being any outstanding wages earned and any holidays accrued and not taken at the date of termination of employment.

Payment in lieu of notice is taxable if it is a contractual entitlement. The most obvious is if your contract of employment specifically states that the employer reserves the right to make you a payment in lieu of notice. This is known as a PILON clause and means that any lump sum pay in lieu of notice will be taxable.

However, pilon can also become taxable if there is a custom and practice at the company that pilon is normally paid, and it has become a legitimate expectation. In plain english, what that means is that there is an established practice that in redundancy situations (for example) the company don't require the employee to work their notice, but make a lump sum payment. This is a trickier situation, but if the company is fairly small and/or doesn't have a history of previous redundancies, and there is no pilon clause in the contract, then it is more likely that the payment will not be taxable.

Bearing in mind, of course, that the employer is perfectly entitled to require you to work your notice, in which case a payment in lieu isn't payable.

Statutory redundancy payments are not taxable, but as you say, you don't qualify for a SRP. Genuine discretionary or ex-gratia redundancy payments are also not taxable, but again if the employer has a redundancy payment policy, or a custom and practice of paying a particular amount in addition to SRP, then that may become taxable. On the other hand, if there is little previous history of redundancies, or if your severance/redundancy package is genuinely negotiated on an individual case basis, then it will not be taxable.

Any non-taxable payments made are limited in total to £30000.

Also, the tax free payment is not included in the P45, and to be safe, the P45 should be issued before the tax free redundancy payment is made (so it can't be deemed to be an 'emolument of employment' )

Sorry if I have made this seem complicated, but as you can see, tax on redundancy payments is not as straight forward as is commonly believed.

getmore4less

Genuine discretionary or ex-gratia redundancy payments are also not taxable, but again if the employer has a redundancy payment policy, or a custom and practice of paying a particular amount in addition to SRP, then that may become taxable.

Must be very rare, special cases,

That would make nearly all public sector, NHS, etc, banks redundancy payments taxable.

tartanterra

Thanks for your replies.

To further clarify, I'm a tradesman and work a zero hours contract.
I work for an hourly rate which includes holiday pay at 1/17th of the rate. I therefore have no outstanding holiday pay. I was given more notice my contract stated, so no PILON either.

This payment is a straight redundancy payment, which as I mentioned before, he doesn't have to give me as I have been there less than two years. He is just being decent.

Having read what you have all written, it appears that I shouldn't be paying tax.

I suspect this payment was probably processed yesterday, and tax will probably have been deducted by the accountant. Any ideas on how I get the tax back if it has been deducted at source?

Also, time is not on my side, as the company is being wound up at the end of the financial year.

I don't really want to pursue my previous employer over this, for two reasons:

1. He has done a good thing by doing this, and TBH, taxed or not - it still costs him the same. He is only acting on the advice given.

2. It's a partnership that is being wound up (to clarify - I am an employee, not the other partner!), and he is starting on his own again. It is highly likely I may get more work out of him in the future as a subcontractor, so I don't want to get his back up by causing him grief!

This all appears to be caused by poor advice from the accountant.

antrobus

tartanterra wrote: »

...
I suspect this payment was probably processed yesterday, and tax will probably have been deducted by the accountant. Any ideas on how i get the tax back if it has been deducted at source?

hmrc.

........

getmore4less

If the payment was taxed then HMRC should be able to deal with it.

Should be itemised on a payslip/p45/letter in some way

IF the payment was just calculated based on net(say net 2 weeks pay), it may not have actualy been taxed so you can't get a refund.

michaels

Hey TT, I hope this is not too big a deal - are you likely to find employment straight away with another employer?

On the bright side more time to post on the Debate thread.

Take care

tartanterra

michaels wrote: »

Hey TT, I hope this is not too big a deal - are you likely to find employment straight away with another employer?

On the bright side more time to post on the Debate thread.

Take care

Thanks.

I'm starting my own company next week; as ever, lots of hoops to jump through, but hopefully I won't be twiddling my thumbs for long!