Redundancy help with tax please

Redundancy_Help_Needed

I am being made redundant on 31st December and am really struggling to calculate the tax on my additional redundancy payments from PILON and retention bonus and hope someone can help me. My current salary is £40,100 and my tax code is 954L. I thought I would just slip into the 40% tax bracket this year due to bonus payment and share option sales but the redundancy payment is going to tip me well over now.

Before I am made redundant on 31st December, I will have earned a total of £34,451.14 (including December salary) and paid a total of £6126.50 tax

My redundancy will consist of £8100 statutory with no deductions, £3343.25 PILON again no deductions due to my contract, In addition, I will receive £13,373 as a combination of PILON and a redundancy retention bonus, this sum will be subject to normal deductions of tax and NI. I will also receive 5 days holiday pay, again subject to normal deductions.

I start my new job from 1st January and this will be on an almost identical salary. At the moment, I usually earn £3343.25 and pay around £485.70 tax but this is at 20% so I assume my first 3 months in new job will all be at 40% tax level.

No matter how I try, I cannot work out how much deductions will be due on the redundancy payment. I have used several online calculators, including the HMRC one, and they all come up with different amounts!


If anyone can help me with both the redundancy payment calculation plus the tax for the first 3 months of the new job, I would be extremely grateful :T

getmore4less

If starting a new job it will sort itself out as long s the P45 get processed quickly.

One problem is the redundancy gets processed through PAYE on the month it gets paid so usually results in over paid tax.

If you stick the full taxable Dec pay into the HMRC calculator(not got the link handy will go look for it) along with the Nov numbers you will get the tax.

getmore4less

http://payecalculator.hmrc.gov.uk/PAYE0.aspx

make sure you get month 8-9

you can then project forward for month 10-11-12 to see the overpaid tax coming back

uknick

The first £30k of a "true" redundancy payment should be free of income tax and national insurance. Anything over that balance only attracts income tax. I think it avoids national insurance as it is not earned income.

PILON is taxed as usual with regard to NI and Income tax.

I am a little confused by your £13k of PILON and redundancy. You really need to split this amount into its component parts to take full advantage of the £30k tax free amount.

But, as you say I think you will be taxed at 40% for the rest of the tax year. From what you've given us, your taxable income for the year to the end of December will be about £50k when all the taxable payments are taken into account.

One other thing to be careful of is how the income tax is deducted in your last payment from your previous employer. On a pro-rata basis it could take you into the £150k earnings threshold and tax at 45%. You should get this back but it may need a self assessment at the end of the tax year.

Redundancy_Help_Needed

Thanks very much for the help,

I will get my normal December pay at the end of the month and my P45, I have been told that I will then get my redundancy pay approximately 21 days later and a pay slip to cover this. I will start my new job on 1st January and will get paid by them around the same time.

I assume I just put the deductible part of my redundancy pay into the calculator, i.e. £13,373, is that correct? That gives me tax deductions of £5851.70

When I work out the tax for the remainder of the tax year on my new salary, do I ignore the deduction free component part of the redundancy, or do I need to include that in my previous gross pay to date?

Totally confused here :huh:

Redundancy_Help_Needed

The only payment that is true redundancy and hence tax free is £8100 statutory redundancy and £3343.25 which is pay in lieu of notice and is deduction free due to my contract. The remaining redundancy payment of £13,373 is another 2 months notice and 2 months retention bonus and this is subject to normal deductions.

Unfortunately the full amount is not classed as contractual redundancy so the majority will be subject to tax and NI deductions.

I think I understand some of it now but still do not know if I need to add in the non-deductible element when entering my gross pay to date in the calculator for January to March 2014.

uknick

I would only ignore any non taxable amounts. That is how the online self assessment software does it.

chrisbur

Redundancy_Help_Needed wrote: »

Thanks very much for the help,

I will get my normal December pay at the end of the month and my P45, I have been told that I will then get my redundancy pay approximately 21 days later and a pay slip to cover this. I will start my new job on 1st January and will get paid by them around the same time.
:huh:

This sounds to me as if your redundancy pay and whatever else is paid with this is going to be paid after the P45 is issued. If this is the case any taxable part of this will be taxed on 0T month 1 tax code and the details will not be on the P45 which goes to your next employer, unless the real time procedures have changed this. If this is the case the correct tax due figure may not be calculated until after the end of the tax year.

getmore4less

As above, if not done through PAYE the tax rules change so likely you will need a self assessment at end of tax year to recover the overpayment(which will probably be quite a lot).

PILON is usually taxable or not, if you have lots of advanced warning of redundancy so you can work notice you can convert the "PILON" payment into redundancy if done properly, maybe this is what has happened for part of your notice.