Tax on redundancy

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Hi folks, I’ve been put at notice of redundancy and I’m struggling to calculate how much tax I will likely pay on it. I officially leave in April 6 so it will be into a new tax year. The redundancy amount is 79k, with the first 30k tax free. My personal allowance will be 8,970 as I have a company mortgage. I will likely have 6,600 earnings through other income in the coming year. Which puts the amount at 46,338. Am I right in saying I’ll pay 20% tax on the 46,338 I.e. 9,267? Naturally will change if I secure another job. Thanks in advance, any help appreciated.

unholyangel

Firstly, is the 79k the redundancy pay or the redundancy package? 

Normally a redundancy package would be comprised of several elements. Most of which are taxable (like holiday pay or pilon). It's the compensation part that's tax free on the first 30k.

Secondly, if you're being paid it in April of the new tax year and are monthly paid, you will only have 1/12 of your allowance and rate bands available. So no, it won't be taxed just at 20%. It will have all rate bands (20/40/45) applied and you may have to claim a refund. 

Jeremy535897

Even if your figures are correct, and ignoring the cash flow disadvantages of a large deduction on payment followed by a refund later, your tax liability for 2020/21 will be as follows:
Redundancy taxable £49,000 plus other income and mortgage benefit £10,130 less personal allowance £12,500 = £46,630 (not sure where the £46,338 you have comes from) taxable income after personal allowance.
Income tax (assuming you don't live in Scotland) is £37,500 at 20% = £7,500 + £9,130 at 40% = £3,652 totalling £11,152. Pension contributions may reduce this, and there will be a month's class 1 NIC to pay of about £1,300.

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unholyangel said:

Firstly, is the 79k the redundancy pay or the redundancy package? 

Normally a redundancy package would be comprised of several elements. Most of which are taxable (like holiday pay or pilon). It's the compensation part that's tax free on the first 30k.

Secondly, if you're being paid it in April of the new tax year and are monthly paid, you will only have 1/12 of your allowance and rate bands available. So no, it won't be taxed just at 20%. It will have all rate bands (20/40/45) applied and you may have to claim a refund. 

Thanks, UnholyAngel. It’s the pay I believe, no PILON or holiday included. Sounds like it might be worth calling HMRC in advance to warn them.

Dazed_and_C0nfused

Advance warn them of what?

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Jeremy535897 said:

Even if your figures are correct, and ignoring the cash flow disadvantages of a large deduction on payment followed by a refund later, your tax liability for 2020/21 will be as follows:
Redundancy taxable £49,000 plus other income and mortgage benefit £10,130 less personal allowance £12,500 = £46,630 (not sure where the £46,338 you have comes from) taxable income after personal allowance.
Income tax (assuming you don't live in Scotland) is £37,500 at 20% = £7,500 + £9,130 at 40% = £3,652 totalling £11,152. Pension contributions may reduce this, and there will be a month's class 1 NIC to pay of about £1,300.

Thanks, Jeremy. As the mortgage is a BIK my tax allowance is 8,970 rather than 12.5k. Where does the 49k come from - forgive me? I am considering pension payments to reduce my tax liability.

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Dazed_and_C0nfused said:

Advance warn them of what?

Thanks, Dazed. That I’m being made redundant so they can calculate the tax right - and it’s in line with what I’m expecting.

Dazed_and_C0nfused

You are getting your tax code allowances and Personal Allowance mixed up.  

You can only have a Personal Allowance less then £12,500 for two reasons, either by applying for Marriage Allowance or having adjusted net income in excess of £100k.

The £49k is from your original post.

The redundancy amount is 79k, with the first 30k tax free

Dazed_and_C0nfused

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Dazed_and_C0nfused said:

Advance warn them of what?

Thanks, Dazed. That I’m being made redundant so they can calculate the tax right - and it’s in line with what I’m expecting.

HMRC don't calculate your tax during the year, your employer does that based on the PAYE system.

You cannot circumvent the fact that you will be earning at an annual rate of about £600k in April. 

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Dazed_and_C0nfused said:

You are getting your tax code allowances and Personal Allowance mixed up.  

You can only have a Personal Allowance less then £12,500 for two reasons, either by applying for Marriage Allowance or having adjusted net income in excess of £100k.

The £49k is from your original post.

The redundancy amount is 79k, with the first 30k tax free

Ah yes sorry about the 49k, thanks. I am married and have the marriage allowance.

Dazed_and_C0nfused

You still just have a Personal Allowance of £12,500, you cannot have one greater than that.

But if you are not classed as a higher rate payer in the 2020:21 tax year then you will get £250 knocked off your tax bill courtesy of the Marriage Allowance tax deduction.