Tax on Redundancy Payment - Spitting Feathers

smileypigface

Not sure whether this is the best place for my issue - or whether the tax forum is more appropriate.

I took redundancy from the Civil Service on 29 June 2012. Received a 'Compensation Payment'. For some reason the decision had been made to tax these payments on a Week One basis. This has resulted in a tax overpayment of approximately £6K.

All the paperwork and information provided to me indicated that all I needed to do was to write to HMRC (they even provided a template letter that I just needed to sign) and the overpayment would be repaid.

Additionally, I had made an overpayment on my PAYE of approximately £1K.

I wrote to the tax office requesting reimbursement.

Today I have received a letter saying that because I am claiming a taxable benefit (Contributions Based Job Seekers Allowance) that I will not receive my reimbursement until I cease to claim the benefit.

I am absolutley flabergasted (massive understatement) - that I essentially have to choose between waiting (possibly 6 months if I'm unlucky enough to still be job hunting by the time by entitlement to benefit finishes) for my reimbursement or forfeiting a benefit that I am entitled to claim.

And what justification is there to penalise me after dutifully paying all my tax liabilities on time and in full for the last 27 years of my working life .... none at all other than "it's the way we do it".

So a decision, totally beyond my control, for the civil service to hand £6K of my compensation payment to the tax man totally unnecessarily now results in my money being witheld from me.

Contributions based JSA is £71 per week - even if I claim it for the maximum time I can (26 weeks) I will only owe £369 tax on that income.

Madness ... utter utter madness.

Clearly what I should have done was to have claimed back my overpaid tax first and then put in a claim for JSA - a lesson learned for anyone else faced with similar circumstances in the future.

I am so angry.

Has anyone else been in this position - and anyone been able to overcome the ludicrous way the tax office are insisting on dealing with this?

:eek::eek::eek:

getmore4less

This is fairly common knowlege it has been like this for some time well over a year(April 11).

Solution is a P50 and delay the JSA claim by around 4-8 weeks

mildred1978

Same happened to me when I took redundancy last July, except the overpayment was £12k.

I didn't claim JSA, so filled out a P50 as soon as I could. The tax office still fannied around for several months before giving it back. I was about to call in my "friends in high places" when it magically got sorted.

Sambucus_Nigra

Annoying isn't it! One rule for them and one for the rest of us...

smileypigface

getmore4less wrote: »

This is fairly common knowlege it has been like this for some time well over a year(April 11).

Solution is a P50 and delay the JSA claim by around 4-8 weeks

Unfortunately not common enough that I came across these facts in what I thought was careful research! But, I suppose at least by putting my situation on here it might save someone else falling into the same place I am now in!!!!!!

Should have posted here back in May and asked for tips - kicking myself now!!

Thanks for reading and replying though x

mildred1978

Sambucus_Nigra wrote: »

Annoying isn't it! One rule for them and one for the rest of us...

Eh?

JimmyTheWig

I guess the logic is that if you are looking for a job then you will find a job. In which case your unused tax-free income will be accounted for in your future pay packets, in which case it is right to tax the whole lot.
...
Hold on, that's not right even then. Presumably you've been taxed at 40% for most of this money as to earn a big lump sum in one month would easily push you over the threshold for that month.
If you're not a higher rate tax payer, that's even worse.

getmore4less

If this was paid as final payment before p45 I think it has been taxed like this for much longer as mine was July 2009

Sambucus_Nigra

mildred1978 wrote: »

Eh?

Well, they hang on to your money for [up to a] year whilst you have 14/28 days to pay them any tax owed on your tax return.

I opted to pay my tax by adjusting my next year's tax return [they offered it to me] and got a note through a couple of weeks later all in RED CAPITAL LETTERS saying I WASN'T ALLOWED TO DO THAT AND HAD 14 DAYS TO PAY OR THEY WOULD TAKE FURTHER ACTION. So why offer me the option in the first place?

Whereas when I had overpaid the previous year [due to being made redundant] I had to wait until coming off benefits for money that was rightfully mine.

Hence, one rule for them and a completely different one for us lesser mortals.

mildred1978

Sambucus_Nigra wrote: »

Well, they hang on to your money for [up to a] year whilst you have 14/28 days to pay them any tax owed on your tax return.

I opted to pay my tax by adjusting my next year's tax return [they offered it to me] and got a note through a couple of weeks later all in RED CAPITAL LETTERS saying I WASN'T ALLOWED TO DO THAT AND HAD 14 DAYS TO PAY OR THEY WOULD TAKE FURTHER ACTION. So why offer me the option in the first place?

Whereas when I had overpaid the previous year [due to being made redundant] I had to wait until coming off benefits for money that was rightfully mine.

Hence, one rule for them and a completely different one for us lesser mortals.

Oh right. I was confused because even civil servants taking redundancy from HMRC get taxed this way.

The method was changed specifically so that they get to hang onto the money for longer, but I *think* they paid me some interest on it when I got it back.

mildred1978

JimmyTheWig wrote: »

I guess the logic is that if you are looking for a job then you will find a job. In which case your unused tax-free income will be accounted for in your future pay packets, in which case it is right to tax the whole lot.
...
Hold on, that's not right even then. Presumably you've been taxed at 40% for most of this money as to earn a big lump sum in one month would easily push you over the threshold for that month.
If you're not a higher rate tax payer, that's even worse.

It's the same method wherever redundancy payments are made.