Tax and NI on Lump Sum

caveman38

If your give a lump sum in lieu of notice. Do you pay tax & NI on thet sum as if it was earned in that month. Or do they assess it as earnings over the 3 months and tax accordingly.

tacpot12

Yes, you pay tax and NI on it as if it were earned in that month.

caveman38

I appreciate that overpaid tax can be claimed back at the end of the financial year. But assuming no more earnings for 20/21, can you claim back NI contributions?

Dazed_and_C0nfused

caveman38 said:

I appreciate that overpaid tax can be claimed back at the end of the financial year. But assuming no more earnings for 20/21, can you claim back NI contributions?

Only in limited circumstances.  NI is calculated per pay period so unless the employer makes a mistake it's unlikely any NI refund would be due.

caveman38

Therefor it is not wise to take PILON but to stay at home on notice and be paid monthly - financially

chrisbur

caveman38 said:

Therefor it is not wise to take PILON but to stay at home on notice and be paid monthly - financially

The better deal financially would depend on the payments involved.  Having the three payments paid together would mean you loose two monthly NI allowances but if the payments added together go over the upper earnings limit this loss starts to be cancelled out as your NI is now being deducted at 2% instead of 12%.  Eventually you reach a figure where the NI paid on the lump sum is less than that paid on the monthly payments.

For example say £3000 a month paid as £9000 instead of over three months. 
NI for £3000 £264.96 * 3 is 794.88
Ni for £9000 is £501.66
Saving nearly £300