Redundancy Pay split

noncom_2

Hi

I am under notice of redundancy (no sympathy please, I volunteered). I've been with this company a long time and their terms are generous, so the payout will be a little over 40k.

I have yet to agree a leaving date, and have been told that if I finish between 31/3 and 5/4 the redundancy payment can be split between two financial years.

The £30k tax free amount would be paid in the current tax year, and the remainder in the 2013/2014 year. I know colleagues who have been made redundant from other Departments in the past who have had this arrangement.

What I can't work out is why it would benefit me? The only bit of the payment which moves across the tax-year boundary is the £30k tax-free amount.

So if it's tax free, why would it affect the tax paid on any other income in either tax year? Why does it make any difference in which tax year this £30k is paid?

Thanks
Andy

nomoneytoday

Because if you earn less next year your overall tax bill be be lower..

noncom_2

But the only difference if I split the payment is that the 30k tax free payment appears in next year's accounting instead of this year's.

If it's tax-free, isn't it ignored for tax purposes anyway, and therefore makes no difference to next year's earnings whether I get it then or not?

FWIW, this is how I see the three options:

1. Leave before 31/3

2012/13 tax year: 30k redundancy tax free + £10k taxable redundancy + salary.

In this scenario, I probably pay more tax, as the £10 taxable redundancy pay plus salary means an element of high-rate tax.

2. Leave between 31/3 and 5/4

2012/13 tax year: 30k redundancy tax free + salary
2013/14 tax year: 10k taxable redundancy + future taxable earnings

Assuming my future earnings are less than my current salary, then this means I save some tax

3. Leave after 5/4

2012/13 tax year: salary
2013/14 tax year: 30k redundancy tax free + 10k taxable redundancy + future earnings

Compared to situation 2) I don't see a difference since the only change is the payment of tax free money.

Am I wrong?