P45 doesn't show details of redundancy payment and tax paid

marlot

OP - If you've paid a large amount of tax, it might be worth shunting some money into a pension - if you can afford it, it helps soften the blow.

Contributor

Comment reference ZZZLazyDaisy on 21-07-2013: Tax regime changes for redundancy payments were introduced by HMRC in April 2011. Previously, tax was 20% above the first £30K and additional tax, if due, was collected after self assessment completion (and I assume collected in the following tax year). HMRC considered this a short term cash flow advantage to the employee and closed the 'loop hole' like they so often do. Redundancy payments are now subject to '0T' tax code treatment. I went through a redundancy process in the 2013-2014 tax year - and this is how my redundancy payment was taxed. I was a Finance/Commercial director of a SME company and calculated my provisional net of tax figures for all payments due; my expectations for net payments were confirmed when final figures went through the official Company Payroll Bureau

Contributor

It is possible to mitigate tax charges by 'dumping' into pension - certainlywithin 'normal' salary payments e.g. keeping away from the 40% tax band andmost definitely from £100K when the marginal rate rises to 60% at £118K (loose£1 of personal allowance for every £2 earned above £100K until the allowancehas 'gone' at £118,880 (2013-14), tax then 'returning' to 40% up to £150K. N.B.limits as to total amount contributed to a 'Defined Contribution' pensionscheme (SIPP etc) - I think this was £50K p.a. then reducing to £40K p.a. for2014-15 year. I'm unsure of the tax treatment if some of the 'RedundancyPayment' is 'dumped' to pension - Professional Advice should be sought. Thiswould have to be highlighted within a 'Settlement Agreement'. Also consider (ifit is deemed appropriate from a tax point of view) the maximum pension contributionsthat can be made in any tax year. You could exceed the maximum allowable whentrying to reduce tax. Pension advice should also be taken as it is not alwaysappropriate for some individuals to fully mitigate tax by dumping to pensione.g. Pay a bit more tax and a higher gross figure but still receive a higher net payment and use the differencebetween the higher and lower figure to pay off debts or reduce mortgage etc.that could be charging higher rates of interest than the growth in a pensionfund - ADVICE SHOULD BE TAKEN though!
I know for many, these figures are pie-in-the-sky(fortunate to be on those sorts of salaries - and a nice problem to have!)

purdyoaten

noelphobic wrote: »

They have taken more than 20% in tax. They did send me a letter before I was paid explaining how it was calculated. It said I would be put on a week 1 code I think? So I have overpaid rather than underpaid tax by my calculations.

I will leave it until April then I think, although I will probably be looking to start claiming JSA sometime before the end of this tax year. If I have worked it out correctly I think that would be the latest I could claim because I would need to have full NI contributions for the 2 full tax years prior to putting a claim in. There's always the possibility that I will have a job before then but I am concentrating on finishing my degree and sorting a few things out at home first.

Much variance in the advice here!

It is now almost the end of the tax year. What you need to do is to add up the totals of pay from each of the forms P45 which correctly ignore the £30000 tax-free amount. Calculate the actual tax due -first 9440 is free of tax, next 32010 is at 20% with the remainder at 40%. (Hopefully this remains at under £100k above which it does get complicated). Compare this with the total tax deducted. It is more than possible that you have not benefitted from your full personal allowances and/or 20% Band. Write to HMRC after 5th April enclosing the forms P45 and ask them to 'review' the tax year. Stipulate that you have had no other taxable income other than that shown on the forms P45.

Contributor

Noelphobic : I concur with purdyoaten's comment and yes there is much variance in the advice here. To confirm - all redundancy payment is taxed separately from regular salary (see 0T tax code treatment of redundancy pay in previous comment). It doesn't matter what the redundancy amount is, it's ring fenced and does not appear on a P45. If it's less than £30K then tax free, over this amount taxed as 0T tax code (as my previous comment).It's CORRECT that redundancy pay does not appear on P45. If you've ceased working part way through the year or even taking Job Seekers Allowance from employment termination to end of tax year, you're more than likely (certainly) due a tax refund. If still signing on after 5th April the DWP will issue a P60 and a tax refund if/when due is automatically sent to you (i.e. Benefits paid plus earnings up to employment termination in the same tax year are added together). If you weren't signing on and you've had no further earnings since your last P45, HMRC will consider your situation. You should not have to wait. HMRC website does have further information on this matter which states their requirements for supporting documentation that's required to get that tax back. I've been through this process ( redundancy in 2013) and currently on JSA. My redundancy was taxed as 0T tax code. Job Centre Plus have confirmed P60 will be issued for YE 5th April-14 and a tax refund will be automatically sent. Will confirm this when it happens.

purdyoaten

Contributor wrote: »

Noelphobic : I concur with purdyoaten's comment and yes there is much variance in the advice here. To confirm - all redundancy payment is taxed separately from regular salary (see 0T tax code treatment of redundancy pay in previous comment). It doesn't matter what the redundancy amount is, it's ring fenced and does not appear on a P45. If it's less than £30K then tax free, over this amount taxed as 0T tax code (as my previous comment).It's CORRECT that redundancy pay does not appear on P45. If you've ceased working part way through the year or even taking Job Seekers Allowance from employment termination to end of tax year, you're more than likely (certainly) due a tax refund. If still signing on after 5th April the DWP will issue a P60 and a tax refund if/when due is automatically sent to you (i.e. Benefits paid plus earnings up to employment termination in the same tax year are added together). If you weren't signing on and you've had no further earnings since your last P45, HMRC will consider your situation. You should not have to wait. HMRC website does have further information on this matter which states their requirements for supporting documentation that's required to get that tax back. I've been through this process ( redundancy in 2013) and currently on JSA. My redundancy was taxed as 0T tax code. Job Centre Plus have confirmed P60 will be issued for YE 5th April-14 and a tax refund will be automatically sent. Will confirm this when it happens.

The op has not signed on for benefits and will not, therefore, receive a form P60. I concur with the remainder except that I would write to HMRC to request the review. HMRC will not even begin to review 2013/14 until after the P11D deadline of 6th July - could take many a month. Even then, one would expect that they write to the op to account for the gaps in employment which further delays matters. It is much better to eliminate delays bt getting the responses in first.

I do hope that I am wrong but I would be very pleasantly surprised if the job centre processed your own repayment correctly and I do hope that they do. Please do let us know how you get on.

Contributor

Yes, I would/will be pleasantly surprised if this P60/refund occurs sooner rather than later and that the refund amount is correct; I know what the refund should be, give or take. Otherwise as you said I'll have to do self assessment which usually means waiting for P11d - post 6th July 2014 and then delays beyond this (will need to do this anyway as was a Director in 13-14). Job Centre has had my P45 and I can confirm I've seen the relevant numbers on their system - and they have repeatedly confirmed that I won't have to claim tax back - it will happen automatically within 4 to 6 weeks of year end! Won't count my 'chickens' though! Fortunately I'm not desperate for this refund but still want to get loose ends tidied up - quickly. Next job is to sort my pension out with my IFA - budget pension reforms etc. It always appears to be a never ending task sorting personal finances out, but you have to keep on top of it. I was a Finance Director for a large SME so hopefully 'know my numbers'. Still take professional advice though! Need to 'tick the boxes' and then get on with my life - I hit 60 last year.......enough said. Will let you know how this turns out.

noelphobic

I sent (P50?) to HMRC a few days ago, along with my P45 and the payslip I got for my redundancy payment.

I did get a fright a few days ago. Someone who works for the organisation i volunteer for, who used to be quite high up in HMRC, said that I wouldn't get a refund of any of the tax paid on my redundancy payment, only the overpayment on my salary. However, he did leave HMRC a while ago so I think (hope) that he's got it wrong and that, if that was ever the case, then things have changed.

I haven't claimed JSA or any other benefits as yet so it should be straightforward, although I realise I will have to wait a while, especially as I've claimed at a very busy time of the financial year.

noelphobic

marlot wrote: »

OP - If you've paid a large amount of tax, it might be worth shunting some money into a pension - if you can afford it, it helps soften the blow.

I did consider this, and got forecasts to see what difference it would make. I would only have got a few hundred more back on the lump sum I could draw from my pension and very little on my monthly payment. It would take me years before I would be up on the deal so I decided against it.

noelphobic

Another question. I didn't use up all my personal allowance in the 3 months that I worked. Does the remainder of this allowance get taken into account when calculating any tax refund owed on my redundancy payment?