Termination package at work - tax implications??

smiales

Hi,

I'm about to accept a termination package at work but an element of it they want to tax me on (its the maternity element, I'm 29 weeks pregnant and basically they are paying it me all upfront) They are saying that although they are taxing me on it, next year I will get a tax rebate for it anyway so they are effectively not taxing me in the long run.

Can anyone advise as to whether this sounds right? I stand to lose about £1200 in tax and £900 in NI.

Thanks

Gas_Powered_Toothbrush

If you qualify for maternity pay and are leaving the job, then yes, the employer can pay you it all up front. And if they do so, then it's liable for tax and NI as normal. The employer will have to pay much larger employer NIC if they pay it in one lump like this, but they may have decided that's what's easiest for them. And if they have, then there's very little you can do about it.

You'll get the tax back as the year goes on, but not the NI.

smiales

Hi, so long as I get the tax back thats fine, it's just not knowing forsure if I will that was worrying me.

Savvy_Sue

Gas_Powered_Toothbrush wrote: »

If you qualify for maternity pay and are leaving the job, then yes, the employer can pay you it all up front. And if they do so, then it's liable for tax and NI as normal. The employer will have to pay much larger employer NIC if they pay it in one lump like this, but they may have decided that's what's easiest for them. And if they have, then there's very little you can do about it.

You'll get the tax back as the year goes on, but not the NI.

Having said that, NI is based on whatever the pay period is. Usually that's a week or a month, but I learned last year (via MSE!) that it might be longer. So if you pay someone a year's salary in one go, you don't end up paying a lot more NI because you calculate it for the year.

I feel I'm not explaining this very well, but it occurs to me that if the employer is paying, say, 6 months SMP at once, then they should calculate the NI accordingly.

jimmo

Savvy_Sue wrote: »

I learned last year (via MSE!) that it might be longer. So if you pay someone a year's salary in one go, you don't end up paying a lot more NI because you calculate it for the year.

I feel I'm not explaining this very well, but it occurs to me that if the employer is paying, say, 6 months SMP at once, then they should calculate the NI accordingly.

Any chance of a link to that? It sems to clash with this.
http://www.hmrc.gov.uk/manuals/nimmanual/NIM09310.htm

Savvy_Sue

jimmo wrote: »

Any chance of a link to that? It sems to clash with this.
http://www.hmrc.gov.uk/manuals/nimmanual/NIM09310.htm

I was afraid you'd ask that ...

I'll go and have a hunt. I remember the scenario, someone was planning to pay their son for a year's worth of work in their business, not sure if it was this board or a different one!

Savvy_Sue

No, can't find it quickly. As I say, not sure which board it was on. I've even tried searching HMRC website, the link you've provided is very clear and contradicts what I thought I learned ...

Savvy_Sue

Ah, no, I've found the link I was thinking of, on the HMRC website. In Chapter 2, on page 13, there are instructions for calculating the NI due if the pay period isn't weekly or monthly.

It has been suggested to me that if the sum on which NI is due has been 'earned' over an irregular pay period, then the amount due should be calculated for that pay period.

A simpler example (which I'd forgotten about) is when DS2's p/t job failed to pay for one of his shifts, and added it to the next payslip, which took him 'over the limit' for NI. Apparently he could have requested his payroll to recalculate so that he wasn't charged NI, even though in that month he was 'over the limit', but he wouldn't have had to pay it if they'd paid him the right amounts at the right times!

Anyway, your link is very clear so I'm probably wrong on this one ...

jimmo

I had a quick look at your link earlier and followed it easily enough but when I came back tonight it all seems to have changed (Chapter 2 now starts on page 16

Anyway I think the point is that your earlier case was considering salary. We are now considering SMP and the rule I linked to last time seems to be reflected in Chapter 2 part 26 which is on page 18 of the CWG2 (but page 23 / 100 on the PDF numbering system)

By the way, whilst I am no expert in NIC, I believe that, subject to the numbers, there is a potential trade off where sacrificing the weekly Primary Threshold in exchange for paying 2%, as opposed to 12%, on an artificially high excess over the UEL if you could get away with it.

So for the OP numbers are really important. £900 NIC could be a good deal for her. It could be bad.