Taxed on redundancy payment

slider09

Hi

I have just had a tax bill telling me I have underpaid income tax for the tax year 2011 - 2012. The total PAYE income on the tax bill is £1680 more than I actually earnt from my employer according to my P60.

I have just been told from the HMRC that the additional income is actually my redundancy payment I received from the government when my former employer went into administration in Feb 2010 (received approx £3,000 in redundancy money. This was also capped because at the time there was a maximum of £385 per week per year, regardless of what you earnt).

HMRC have just told me that because my previous employer went into administration and my redundancy payment was paid by the government that this payment IS taxable. If my employer were paying my redundancy then this is NOT taxable.

I thought that ALL redundancy payments were tax free as long as they were less than £30,000.

Is this correct?

I don't know what the HMRC are doing these days as my wife got a tax refund around march time this year of around £800 for tax year 2008 - only then to receive a tax bill a couple of weeks ago for approx £1,000!

Appreciate any comments.

Thank you

jimmo

Like you, I cannot see any reason why a redundancy payment should suddenly become taxable in full because it has been paid by the Government as opposed to your former employer.

As far as I am aware it is the reason why the payment was made that is important, not who paid it.

You really need to ask HMRC for chapter and verse on their decision.

At the same time this may be of interest.

http://www.hmrc.gov.uk/manuals/eimanual/EIM13842.htm

You could ask HMRC to explain why, if your redundancy payment was taxable, the Redundancy Payments Office did not deduct tax and why HMRC are chasing you when they should be chasing the RPO for its failure to deduct.

dan.date66

The general rule on redundancy payments is that they are tax free up to £30,000 if they are non-contractual payments, i.e. genuine compensation for loss of office. Where the payment was contractual, this is generally taxable like PILONs (payment in lieu of notice). I agree with previous poster, ascertain from HMRC why they have applied tax, but you may find it is for the reason above.