Lieu of notice tax - Where?

FunkyBudda_2

Morning all.
I'm just finishing my 2014/15 Tax Return and I've hit a bit of a snag.

During the tax year in question, I was made redundant. I received £5400 redundancy pay. I also received £4800 compensation for Loss of Notice that had £794.16 Notional tax deducted.

My question is where do I put these figures in the Tax Return?

According to the Revenue's helpsheet, I put both amounts (£5400 and £4800) in box 5 on the Additional Information page, however since the total is less than £30,000 the figure goes into box 9 instead. Fine.

The Notional Tax should go into box 6. However, the caption in the Tax Return says this is for tax taken off amounts in boxes 3,4 and 5. My boxes 3, 4 and 5 are all empty.

Do I follow the helpsheet instructions and see if the Revenue query it?

Many thanks!

jimmo

Tax wise, compensation for loss of notice is very different to Pay in Lieu of Notice (PILON).
Assuming your former employer has got it right and it is compensation then you need to declare the total amount you actually received as compensation (of which the first £30,000) is tax free).
Notional tax is not tax, it is part of the mechanism of calculating the amount you are entitled to known as the Gourley Principle.
http://www.hmrc.gov.uk/manuals/eimanual/EIM13070.htm
The notional tax should not therefore be included in your Return.

FunkyBudda_2

Thank you for the reply jimmo.

That makes a bit more sense now. I understand the Gourley Principle is a deduction from the compensation to simulate the tax being taken off had you been paid normally, so you're not at an advantage.

However, what would happen if your earnings are below the personal allowance, ie you wouldn't have been taxed if you have been paid normally?

jimmo

FunkyBudda wrote: »

However, what would happen if your earnings are below the personal allowance, ie you wouldn't have been taxed if you have been paid normally?

That is, or should be, part of the negotiations in agreeing your severance package.
Tax is my thing, not negotiating severance packages but I imagine that your employer will have used what information they already knew about you- Pay and Tax to date of leaving and your tax code number. It was then up to you to agree or disagree.
However, if anyone wanted to be totally accurate those negotiations would have had to be on hold until after the end of the tax year when final figures would be available.