PILON and tax

tml1980

I'm being made redundant at the end of July and will be receiving my PILON plus a payment for holidays owed at the end of August. As this gross payment is the equivalent of approx 3 times my normal monthly wage, how will the tax be deducted?
Will it be deducted on the assumption that this is my regular monthly amount, which would therefore mean it would tax me at a higher rate than normal?

daveyjp

https://www.moneyadviceservice.org.uk/en/articles/do-you-have-to-pay-tax-on-your-redundancy-payout

Bungle5393

Unfortunately HMRC will work on the assumption this will be your new salary going forward and you will be taxed accordingly, so expect to be hammered - especially so given we're still relatively early into the tax year. If/when you move onto your next job and are PAYE, this overpaid tax will gradually be repaid to you. If you don't take up employment, you will receive a tax rebate at the end of the tax year next April.

SRP payments are not subject to tax, so this payment (if you're entitled to it) won't affect the calculation.

You could ask your employer to continue to pay you as normal during your notice period rather than a lump sum, this will help to smooth it out and reduce your tax liability.

mummamia42

You will pay tax on notice and holiday. You may be able to claim a tax rebate in April 2021 if you don’t find another job otherwise it will be adjusted within your new paye earnings