Delaying redundancy into new tax year

marlot

I've just been told 1:1 by my boss that I'll be made redundant. He and I are due to meet with HR next week, which I think will trigger the consultation period (I understand this is one month).

I'm on three months notice. This would take me to mid February.

At the moment I'm a higher rate taxpayer, and so will be hugely clobbered by tax.

I'm trying to negotiate with the company to hold off on the process until early December, so that the redundancy happens in the new tax year.

I'm not looking for more cost to the company - happy to take some time unpaid if they'll let me. But just keen for the redundancy to happen next tax year.

Are there any levers or techniques that anyone can recommend which would help? I suspect my company are keen to get everything resolved by the end of the company's financial year (31 Dec), but that does not seem to be in my best interest.

zzzLazyDaisy

Two things to consider:

You may not be required to work your notice. If they pay you in a lump sum thay may be able to make the payment tax free (this depends on whether payment in lieu of notice is contractual or discretionary, which will depend on what is in your contract, and possibly also on previous custom and practice, but worth investigating).

The second thing to remember is that up to £30,000 of redundancy pay can be paid tax free (this would include the notice pay if paid tax free).

Anything over £30,000 would be taxed at the basic rate, and you would then complete a self assessment form for the remaining tax.

So depending on your circumstances you may still benefit by leaving before the end of the year.

marlot

zzzLazyDaisy wrote: »

You may not be required to work your notice. If they pay you in a lump sum thay may be able to make the payment tax free (this depends on whether payment in lieu of notice is contractual or discretionary, which will depend on what is in your contract, and possibly also on previous custom and practice, but worth investigating).

Thanks zzzLazyDaisy; are you saying that the whole sum (ie. including the bit over £30k) can be made tax free? Do you know under what conditions they are allowed to do that? It would be perfect!

bargainbetty

Marlot,

Your best bet is to discuss this directly with your HR/Payroll department, and also use the information services on https://www.direct.gov.uk.

Your specific circumstances should be checked by those who can properly advise on them, although Daisy is quite right about the tax possibilities in general.

marlot

Thanks both - you've given me some new avenues to explore. If I can get them to offer PILON [I don't believe I have it as a contractual right] that would make a huge difference to the tax bill.

It sounds like I may need a decent employment lawyer. I'll start asking around.

zzzLazyDaisy

marlot wrote: »

Thanks zzzLazyDaisy; are you saying that the whole sum (ie. including the bit over £30k) can be made tax free?

No. Which ever way up it goes, you will be liable for tax on any excess over £30,000

marlot

In that case I'm back to trying to find levers to delay into the new tax year. I'll try to get a win:win.

I'll make the offer of taking November off without pay, if they'll hold off starting the process to early December.

getmore4less

What numbers are you looing at.

How much will the termination package be over £30k, that will get hit

You then need to look at the total earnings, how much of that will be in the 40% bracket then include the numbers over the £30k

Remember that even if the PILON can be paid tax free the company can keep the tax/NI and pay you net.

Delaying into new tax year will cost the company money.


you could always top up the pension.


IF you plan to go back to work and get a job that takes you into 40% againn you could end up paying same tax anyway.

marlot

My calculations are showing that I'll pay about £20k less tax if I could delay the redundancy into the new tax year. And while I appreciate that I could walk straight into another job, that has to be unlikely.

Maz264

Marlot - just wondering did you resolve this and get your employer to delay payment till the new tax year ?
I`m potentially in the same boat and was looking into doing something similar.

marlot

No - they made me redundant to their own timetable.

Hope you have better fortune!