Is NI deducted from a termination/redundndancy payment?

dawsonna

I am considering volunteering for redundancy and wished to confirm whether my redundancy payment will have NI deducted as well as tax.  My payment will be potentially well in excess of the £30k tax free threshold and I have seen on some websites that recent changes introduced in April 2020, now mean that we will be deducted NI on the amount above £30k in addition to tax at the nominal rate.  Previously I understand redundancy payments were exempt from
NI.   Does anyone know for sure or has experienced this?.. Thanks

daveyjp

https://www.gov.uk/government/publications/income-tax-and-national-insurance-contributions-treatment-of-termination-payments/income-tax-and-national-insurance-contributions-treatment-of-termination-payments

https://www.gov.uk/government/publications/income-tax-and-national-insurance-contributions-treatment-of-termination-payments

However regardless of NI you would be far better off finding a way of avoiding the tax payment on the amount over £30,000.

dawsonna

The tax payment is taken by PAYE isn’t it?... do you have much option here?

daveyjp

If you don't need the full redundancy amount now and wish to avoid tax and NI on the amount above £30,000 you can make a lumpsum payment to a pension.

You just need to check with your employer if this is possible, your annual allowances etc.

dawsonna

Your comment about NI is contradicted on one of the the gov site links here :-:
(I am not able to post links)

"Employees who’ve been made redundant only pay tax on payments over £30,000. They do not pay any National Insurance.

Tax and National Insurance are deducted from other termination payments, for example payment in lieu of holiday or notice."

I think I will look at SIPP'ng some of my redundancy, as I do have ~ £50k of AA left over from the last 3 years... so could divert a portion of the redundancy into a personal SIPP account, and then start to draw it as a second pension in 2.6 years when I am 55.  I plan to activate my current final salary pension now with the full tax free lump sum, but with a reduction of 23% to age 60 which is my nominal retirement age.  Our scheme rules allow immediate activation of the pension if over 50 when leaving the company, and I worked out it would give me more cash now, and only be worse off after my 77th birthday.  This gives us headroom to divert the redundancy payment up to the LTA/AA into a further SIPP pension for the tax relief, which could be as much as £30k, so worth doing in my view.   Can you get a second tax free lump sum if you havent exceeded your LTA?

ashleypride

dawsonna said:

Your comment about NI is contradicted on one of the the gov site links here :-:

I think all the links agree. After April 2020 employers will need to pay Class 1A national insurance, so it'll will cost your employer an extra 13.8% of the amount above 30K.
The employee will only pay income tax on it.