Tax question on redundancy

youthful

Are there any tax experts out there who could help with this query, I have received notice of redundancy for the end of June, however the organisation have realised that they have been a bit brutal with their cuts and also now know that they will close completely in March 2014. I have been asked to extend my redundancy notice period until then. I'm not sure of the tax situation on redundancy payments, so aware that the first 30k is tax free, but I have also heard (from this forum) that you can claim back tax paid on redundancy over that amount. My query is when is the best time to take redundancy in this situation, for example am I better to go in the March or now or at some point in between? Hope that makes sense, and any responses gratefully received

LittleVoice

youthful wrote: »

Are there any tax experts out there who could help with this query, I have received notice of redundancy for the end of June, however the organisation have realised that they have been a bit brutal with their cuts and also now know that they will close completely in March 2014. I have been asked to extend my redundancy notice period until then. I'm not sure of the tax situation on redundancy payments, so aware that the first 30k is tax free, but I have also heard (from this forum) that you can claim back tax paid on redundancy over that amount. My query is when is the best time to take redundancy in this situation, for example am I better to go in the March or now or at some point in between? Hope that makes sense, and any responses gratefully received

Are they actually offering you the choice of being redundant in June or March? Sounds as they they may be granting voluntary redundancy if they allow you to leave before March 2014?

I believe that the only time you can claim tax paid on redundancy payments over the £30K is where the redundancy is paid during the course of a tax year and what is claimed back is a over-payment arising from unused tax-free allowance accruing later in the year.

My personal view is that it is better to have a job and be paid than not to have a job and earn less but feel that you have gained by getting your tax-free allowance.

youthful

thanks for the advice, I know it is better, but its also a failing organisation very publically, and I need to consider my CV and what impact that will have on it, the tax question is really just to help me make a decision, thank you

dampsquib

LittleVoice wrote: »

I believe that the only time you can claim tax paid on redundancy payments over the £30K is where the redundancy is paid during the course of a tax year and what is claimed back is a over-payment arising from unused tax-free allowance accruing later in the year.

This also applies to the Basic Rate band. If you are to receive a large payment, the way PAYE operates now on Redundancy Payments, you may find you have suffered Higher Rate tax, but as the year progresses you will become entitled to more income to be taxed at the basic rate (assuming you haven't found another job and have a new salary mopping up your Personal Allowance and basic rate band allocation).
Also, should you end up getting a Payment In Lieu of Notice (PILON), this will almost certainly get taxed as normal income, so won't benefit from any of the £30,000 tax free amount.

getmore4less

The key here is if you leave it till march will there be money to pay the redundancy. If there is any risk think about it.

End of the day they can pretty much keep whoever they want by withdrawing the redundancy or changing the criteria during the consultancy.


If they can't pay the falback is the NI fund that will not pay any enhanced package.

if they need you to stay try to negotiate a rise or a retention bonus.

Debt_Free_Chick

youthful wrote: »

My query is when is the best time to take redundancy in this situation, for example am I better to go in the March or now or at some point in between? Hope that makes sense, and any responses gratefully received

You would need to be able to forecast your total earnings for the tax year in order to determine this. A tax refund is not always payable as it depends on the rate of tax paid on the excess and your total earnings for the (tax) year.

If you took redundancy in June and earned nothing more for the rest of this tax year, you might be due a refund. But if you got another job, then you might not.

youthful

Thank you for all the responses, I will need to find another job if not straight away then at least within a couple of months. Its definitely not a case of if I'm redundant but when.
My fears are many such as something 'coming up' where redundancy is no longer an option, and my fear of being jobless is just as bad, that's why I'm so tempted to stay on, even though it is mentally draining now. thanks all:beer:

getmore4less

whats your package likely to be?


Worrying about tax over £30k and need a job in 2 months are not compatible.

youthful

It will be somewhere in the region of 50k, so tax on 20k of it which I'm assuming is approx 10k. I wouldn't bore you all on here with the specifics of the organisation (plus it may give them a bit too much publicity which I'd be in trouble for) but its extremely draining being there at the moment, the tax question is just one among many for me, My meaning regarding a job within 2 months, is because the majority of the redundancy will be to clear debts and bills, so every penny counts, and I'll need to find something else quick smart. This one would only be guaranteed until March, and I've asked for assurance that the redundancy won't be rescinded at any time, but they seem reluctant to give me that!! I'm not up to speed at all with taxes, so it was just a query to help me to make a decision. thanks

getmore4less

You have to be carefull using the money to pay off debts, It may effect benifits if you don't replace the income and need to claim beyond contributions JSA so best to check.

The £20k will get taxed as if you earnt it so does get more at the time but you get the excess it back if you don't earn enough in the same tax year.
(you can get close by grossing up for the year based on total earning inc the excess redundancy and working back)

It won't be 50% unless you are allready a high 40% taxpayer.

One popular option is to take the money and come back as a contractor, done right it is not usually a problem on the tax and changes the work dynamic.
if you want out focus on that, then look at options to contract.

philfuller

This is a point off the main subject but if they are asking you to stay. then they want you to stay until the end. you may be able to negotiate a "special responsibility allowance" ie a bribe to keep you there over and above the normal rate of pay.

i would ask for a reasonable figure to make it worth your while and ask for it to be paid as an increase to monthly salary rather than end payment. you may get an increase in pension contributions if salary based which will be of value later.

also seek to get them to pay for outsourcing co to help you at the end (just make sure the invoice is paid in jan 14 to ensure there is money in the bank

all the best