Is tax payable on a financial inducement to apply for voluntary redundancy?

RedRag

I have applied for voluntary redundancy. The package includes statutory redundancy pay, money in lieu of notice, payment for holidays not taken and an enhancement which is £50 for each redundancy week which in my case is £1500 as I have the max 30 weeks redundancy.

The question is whether this enhancement should be taxed? I spoke with HMRC this morning (who were very helpful indeed) who said as this was not earnings related and didn't take me over the £30,000 limit then it should not attract tax - they gave me the links to their website for my employer to look at.

However, my employer is now saying this payment was an inducement to encourage people to apply for redundancy early. Those that missed a deadline were not given this inducement. He says as it was not a redundancy payment but an inducement, then it should attract tax.

Not sure I agree with him - any thoughts anyone?

Thanks.

getmore4less

Looks like enhanced redundancy to me.

Carl31

If its not redundancy, ie compensation for loss of your job, then its taxable

If your employer was to now state that it is a redundancy payment, then that would potentially open a can of worms for those who opted to not take it

getmore4less

Standard practice to offer enhanced redundancy for volunteers.

NO problem with a tiered package based on the date you apply.

The payment is directly related to the redundancy as it is based on qualifying service at the statutory rate(1.5 weeks for 20 years).

RedRag

Thanks 'getmore4less' - very useful observations. I spoke to HMRC again today who said if I couldn't persuade the employer not to tax me on this enhancement using logic of argument then I would have to apply for a tax refund after the event. I can only imagine my employer is worried about making a mistake and that he might have to pay HMRC a penalty for potentially under-taxing me that he is taking the easy way out and putting the burden on me to have to claim a refund.

getmore4less

Discuss with the other volunteers.

If the employer did not lay out the full package and say this inducement was taxable at the time then they are the ones backtracking on the VR proposal.

What would they do if you all withdrew the VR on the grounds you were missled?

RedRag

According to the employer, as this inducement was apparently known to apllicants because the employer had applied this inducement in a previous round of VR (I never knew that) and had hinted in the VR advertisement this time that there might be an enhancement for early volunteers. then there was an 'expectation' of this income and on that basis he has determined it is taxable and invited me to try my luck and try and get a tax refund from HMRC later.

If I withdrew from the VR, I would have to go into a competitive redeployment situation and I'm pretty sure I would end up compulsorily redundant and lose out on this enhancement and money in lieu of notice - so I am inclined to go with the VR in any case and try and get a refund from HMRC.

Incidentally, I tried to get my money in lieu of notice tax free as well because my contract never specified this as an option available to the employer but it seems because the employer has taxed money in lieu of notice previously, then HMRC would expect this to be taxed as the norm.

When I apply for a tax refund on the enhancement, I'll try and get it for the money in lieu of notice as well but I'm not so hopeful on that aspect.

getmore4less

PILON tax free will be a lot harder if it is custom and practice(which it looks like it is).

Enhanced redundancy up to 30k would be tax free, if they had offered 2 weeks per year would they tax the other week?

They could start the notice sooner(like now) and give extra as enhanced redundancy.

Even where PILON is tax free the employer can give the money net anyway and make the savings themselves rather than give it to the employees.

Looks to me like the employer is not trying very hard to make this as good as it could be for the employees.