Tax Paid on Redundancy...?

Wenalia

Hi all,

I hope someone can help with this...

My partner was made redundant on the 2nd of April 2012 but is being paid the redundancy money on the 27th of April.

The company have taxed her as if the redundancy package is part of her 2011\12 salary rather than 2012\2013... Is this correct?

I would have thought that you are taxed on money paid to you in the current tax year, so this should come from her 2012/13 allowance? Is that right?

Also, strangeley, she has been taxed 33.7% on the taxable part even though in 2011\2012 with the taxable part of the redundancy payout included she only earned £26K... The tax code on the final payslip is 0T. ?

Any help will be much appreciated!

Thanks

opinions4u

The tax point should be when the payment is made.

Any payment in lieu of notice is taxable as income.

The first £30k of redundancy money should be tax free.

Anything above taxed as income unless it's commuted in to pension contributions.

(disclaimer: that's a simplified view)

Wenalia

opinions4u wrote: »

The tax point should be when the payment is made.

Any payment in lieu of notice is taxable as income.

The first £30k of redundancy money should be tax free.

Anything above taxed as income unless it's commuted in to pension contributions.

(disclaimer: that's a simplified view)

Thank you for this. I'll give a bit more info.. My partner earned £17K 2011/12 as she was on maternity for 8 weeks of the year. The taxable part of her redundancy package is £9,137 but she's been taxed £3081 which I really do not understand.

Now that she's been made redundant she doesn't want to return to work, instead will be a housewife and look after our children and so won't earn any more money for at least the next few years.

Based on this, and what you've stated, my partner should be able to claim most of the tax paid on the £9,137 as her 2012\13 tax free allowance will be the vast majority of this?

Many thanks!

Mikeyorks

Wenalia wrote: »

The company have taxed her as if the redundancy package is part of her 2011\12 salary rather than 2012\2013

How do you know that .......... as :-

The tax code on the final payslip is 0T. ?

...... this is typical of a payment made after the P45 is issued. In which case it could fall into 12/13. But - the rules are that it is taxable when she was 'entitled' to be paid it. Which may not be the same as the payment date. So you need to ascertain the entitlement date ..... which may well be 2nd April. Unfortunately I can't point at the P60 as a good indicator - as she likely won't get one.

http://www.hmrc.gov.uk/employers/p45-employee-leaves.htm#5

xylophone

http://www.hmrc.gov.uk/individuals/redundancy-ee.htm

jimmo

Mikeyorks wrote: »

...... this is typical of a payment made after the P45 is issued. In which case it could fall into 12/13. But - the rules are that it is taxable when she was 'entitled' to be paid it. Which may not be the same as the payment date. So you need to ascertain the entitlement date ..... which may well be 2nd April. Unfortunately I can't point at the P60 as a good indicator - as she likely won't get one.

http://www.hmrc.gov.uk/employers/p45-employee-leaves.htm#5

Cross check

The effect of code OT M1 for 2012/13 is that a payment of £9137 is taxed on the basis of an annual income of 12* £9137 = £109,644.

The annual tax on that income on code OT would be:

34,370 @20% = £6,874

75,274 @40% =£30,109.60

Total tax for the year = £36,983.60

The month 1 tax will therefore be one twelfth of that = £3081.97

It therefore looks as if the employer has correctly operated PAYE for 2012/13. However you still need to follow mikeyork's advice regarding ascertainment of the date of entitlement.