Retiring in April - tax on last salary payment

saver_ali

My husband is retiring at the end of April. In addition to his salary for April, he will also get a retirement bonus, so the total will be about £30k gross.

I am worried that the payroll system will incorrectly assume that this will be his regular monthly salary for the whole year, giving him an annual salary of £360k, so will tax the £30k as if he is an additional rate tax payer. Am I right in thinking this?

As he won't be working the rest of the tax year, I can't see how he will get the tax back until he does a tax return at the end of the tax year.

He may take a small amount from his pension later in 2019, either as an UFPLS or if he crystallises some of his DC pension, but the total will be less than £50k for the year (i.e. he should only be a basic rate tax payer).

Another factor is that he should be eligible for a small amount of sales commission in May or June, so if his employer kept his payroll account open then they might be able to process a refund.

He will be contacting HR to ask them, but doesn't have much confidence in them based on past experience.

Does anyone have any thoughts or suggestions?

Thanks in anticipation.

Rodders53

https://www.gov.uk/government/publications/income-tax-claiming-tax-back-when-you-have-stopped-working-p50

Brynsam

saver_ali wrote: »

I am worried that the payroll system will incorrectly assume that this will be his regular monthly salary for the whole year, giving him an annual salary of £360k, so will tax the £30k as if he is an additional rate tax payer. Am I right in thinking this?

As he won't be working the rest of the tax year, I can't see how he will get the tax back until he does a tax return at the end of the tax year.

You're right - but the good news is he can claim back the overpayment without waiting until the end of the tax year. See https://www.gov.uk/claim-tax-refund

saver_ali

Rodders53 wrote: »

https://www.gov.uk/government/publications/income-tax-claiming-tax-back-when-you-have-stopped-working-p50

Thanks! That makes things a bit simpler!

Dazed_and_confused

I am worried that the payroll system will incorrectly assume that this will be his regular monthly salary for the whole year, giving him an annual salary of £360k, so will tax the £30k as if he is an additional rate tax payer. Am I right in thinking this?

That is because he is earning at a rate of £360k. That is how PAYE works. Had he stayed in the job and been paid say £3k in May the tax deducted (or probably refunded) in May would be based on him earning at a rate of £198k/year. And so on with it being recalculated each month (whilst on a cumulative tax code).

You should be aware that if he claims a refund via the P50 process Rodders53 linked to and subsequently takes some taxable income from his DC pending then he may ultimately owe money back to HMRC. That is because the refund he will get from completing a P50 may be based on using all of his Personal Allowance.

And when he takes his first pension payment the pension company has to use the emergency tax code, which allows more allowances so he could receive too many overall and have extra tax to pay. If he takes a large payment from his pension it is possible that the 40/45% tax the pension company might need to deduct (using the emergency tax code) will mean he is due a further refund but it could be he owes money back.

All depends on how he completes the P50 (there are a couple of options I think) and how much pension he takes.

saver_ali

Thanks, Dazed and......
I have projections for his pension withdrawals in this and future years, and our plan is that he will only ever be a basic rate tax payer.
I have experienced emergency tax with my own pension withdrawals, but that's another story! 😀

ADA58

just an observation , HMRC will not process my P50 without 2018/2019 self assessment (if one is due) being completed , so 1st step is this then P50