BT Leaver and Redundancy payments

tigerspill

kaleel86 wrote: »

Thabks for your reply tigerspil

I did get the tax calculator but some of the terminology used in it escapes me. I didn't quite get what PILON was and who it was applicable too. The calculator said I took everything the 'estimate' gave me tax free. But I wasn't sure if that was right. What you've said above agrees with what I would have thought, but figured I should do my own research just in case.

Have a read through robin61's last pose as it explains it pretty well.
The surprise for me was that it can eat into the 30K tax free allowance. In the spreadsheet I was sent, this was shown in the red boxes near the bottom. Not sure is this is the spreadsheet you have.

kaleel86

robin61 wrote: »

I think a lot of people have found it confusing. If a PILON applies to you you will be given access to a ready reckoner which once you've entered the details personal to you will tell you how much of your early leaver payment is subject to PILON. Basically it starts working the PILON out from the day you apply for the early leaver payment so the earlier you apply and the further away your leaving date the lower the PILON as you will in effect have worked some or maybe all of your notice period.

Be careful here. If I was you I would check with HR what your notice period is because it's not what notice you needed to give BT its what they would need to give you and that's not always the same.

However if someone has a leaver payment of £30k or under and there is a PILON then it unfortunately means that there is tax and NI to pay.

Example - £30k leaver payment and deemed PILON of £5k.
You would get £25 K tax free but £5K would be subject to tax at your marginal rate and NI. You would have to pay the tax in the current tax year.

Example - Early lever payment of £100k and PILON of £20k
£30k - tax free
£20K - subject to tax and NI and payable in current tax year
£50K - subject to tax only.

sorry robin61, i didn't see this post until tigerspill mentioned it. Thanks for such a detailed explanation! Off the back of your reply I spoke to HR who confirmed that the employer notice period for me is also 4 weeks.

So with the above in mind ...If applying for leave on lets say 23rd of July and the final day is 31st of August, that would mean I'd not have to worry about PILON as it's more than 4 weeks away from the date of application. I think I've got that right :think:

robin61

kaleel86 wrote: »

sorry robin61, i didn't see this post until tigerspill mentioned it. Thanks for such a detailed explanation! Off the back of your reply I spoke to HR who confirmed that the employer notice period for me is also 4 weeks.

So with the above in mind ...If applying for leave on lets say 23rd of July and the final day is 31st of August, that would mean I'd not have to worry about PILON as it's more than 4 weeks away from the date of application. I think I've got that right :think:

Yep I think you will be ok there. The ready reckoner they give you access to should confirm that. I messed around with it and the further out the leave day went the lower the PILON.

robin61

tigerspill wrote: »

Have a read through robin61's last pose as it explains it pretty well.
The surprise for me was that it can eat into the 30K tax free allowance. In the spreadsheet I was sent, this was shown in the red boxes near the bottom. Not sure is this is the spreadsheet you have.

Yep for some this is the end of the £30k tax free redundancy. Sneaked that one in didn't they ?

tigerspill

robin61 wrote: »

Yep I think you will be ok there. The ready reckoner they give you access to should confirm that. I messed around with it and the further out the leave day went the lower the PILON.

And the sooner you applied the better (assuming fixed end date) as far as pilon goes as notice seems to start the day you apply - not the approval or leaving date.

DKM1000

Can you avoid PILON (ie the tax payment on it) by putting ALL the Leaver Payment into the BTRSS pension fund? I guess you'd would lose the ability to take first subsequent £30K tax free but can draw down 25% of the fund tax free?

robin61

DKM1000 wrote: »

Can you avoid PILON (ie the tax payment on it) by putting ALL the Leaver Payment into the BTRSS pension fund? I guess you'd would lose the ability to take first subsequent £30K tax free but can draw down 25% of the fund tax free?

Interesting idea. That would mean that you were not getting a leaver payment at all so there is nothing to tax you on i.e. there is nothing that will appear on your P60.

There is a FAQ that deals with how much of your leaver payment you can put into the Increase Your Fund (IYF) option and it says

"You can direct as much of your leaver payment as you wish". and "You cannot direct more than your Leaver payment into IYF"

So it looks to me that you would be able to do this. I also put that scenario through the tax spread sheet I was given by BT to work out the PILON and it didn't stop me from doing this and came up with nothing to pay in the PILON cell.

However as you said you won't be getting your £30K tax free. Granted you can get 25% tax free but that means you will pay tax on £22,500 (although no NI). I'd suggest that the PILON will often be lower than this anyway.

Also you need to be careful about exceeding the annual allowance which is only £40K. So that in the likely event that you exceed this it means you will need to have enough unused allowance available from the previous 3 tax years to carry forward.

DKM1000

Thanks Robin61 for the research and considered reply.


As in your penultimate sentence, I agree with you that in the BTRSS I would have to pay tax on 75% of the £30K. But also on 75% of the PILON amount.


As I see it, the difference does concern these two elements, the potentially tax free £30K and the PILON. I can either take both now or put both in the BTRSS fund. (The rest of my ELP goes into the BTRSS in both cases, so we can ignore this common portion.) For just those two elements:
1) If I take both now the tax payable will simply be the tax on my PILON.
2) If I put both elements into the BTRSS fund, I will pay tax on 75% of the two together.


Option 2 will be much more unless you can arrange for the BTRSS to be drawn down in a year attracting a lower marginal tax rate than when you take Option 1. In my case it appears that the saving would only be on whatever part of it could be in the zero tax band (first ~£12K taxable income). However, I intend to earn some income even if I defer my pension a while, and anyway need >£12K pa. Thus I conclude Option 1 is very much more likely to be the better for me.

robin61

Yep I think that for most it will work out better to just accept you have to pay tax and NI on the PILON. So I think what you are doing is this (I have made some numbers up)

Leaver Payment of £100K
Taken as follows this tax year
Tax free £30K
PILON of £20K - This will attract tax and NI
Remaining £50K to go to the BTRSS

Remember to make sure you don't exceed the annual allowance.

DKM1000

Hi Robin, yes, that's very close to the situation. And correct as I see it. I will need to use the headroom I have against my annual allowance for the last three years to ensure I don't exceed the annual allowance limits.