How best to receive notice period and holiday pay?

Lula-Hula

Hi,
if anyone can offer suggestions, I'd be very grateful!

I'm being made redundant and am due to receive notice pay and untaken holiday pay in addition to my tax free statutory redundancy pay.

I've been on furlough for this tax year and my employer has advised that I will pay a lot more tax than usual - each of the 3 monthly payment will be double what my furlough salary has been.

I opted out of the pension scheme so they are unable to pay it in there for me and whilst I appreciate that tax IS due on this money and I'm NOT trying to get out of paying it, I do wonder if would it be better to request it as a lump sum or just accept it over the 3 months?

I'm hoping to find another job asap but if I don't find one before the end of the tax year (April 2022)  would I then get a tax rebate ?

Thank you for any advice

Dazed_and_C0nfused

I opted out of the pension scheme

As a result of this you have given up free money and are potentially paying more tax than you could be so why the interest in paying less tax now?

Lula-Hula

Snide responses like this are why I left the forum many years ago.

Thank you for the reminder that there is always some smug keyboard warrior who knows nothing of your circumstances but still relishes giving you that extra kick when you're already down.

kuratowski

There might be an NI advantage in taking it all as a lump sum, if the total is over £4189, because it will take you into the 2% rate.

For tax, it will make no difference in the end, as the final income tax calculation is done on an annual basis.  However, in the short term you might overpay a bit more tax via PAYE if taken as a lump sum, and need to wait until end of the tax year to get it back.

Either way, there will very likely be an overpayment of tax to some extent, the following page will give you an idea of what the process is
https://www.gov.uk/tax-overpayments-and-underpayments

Jeremy535897

It's hard to advise without figures. Tax is not going to be affected either way (other than cash flow), but taking it as one lump sum might mean you pay the 2% NIC rate, rather than 12%, on more of it than if paid monthly.

Your tax code will assume you receive income throughout the tax year, so the more months taxable pay falls into, the less tax taken. It will all come out in the wash after the tax year ends (earlier if you get another job).

It may be worthwhile taking advice on starting your own pension scheme.

csgohan4

Lula-Hula said:

Snide responses like this are why I left the forum many years ago.

Thank you for the reminder that there is always some smug keyboard warrior who knows nothing of your circumstances but still relishes giving you that extra kick when you're already down.

it is a factual response  on an open forum and a reminder to other forum users on implications for opting out of pension contributions.

Its not snide but plain hard reality of which you will now bear the cost sadly. 

We can only read what you have put down face value. Circumstances or not, pension remains the most tax efficient way to reduce tax 

you have got got good advice from the above posters. 

KingOfSnake

Your notice pay is called "PENP" - it is going to be fully taxed and NIC'd at source. Sorry. You cannot 'waive' it in to a pension as it is a deeming calculation. The holiday pay you can waiver (sacrifice) into pension, you just need a HMRC registered pension scheme and an accommodating employer. However, you can drop it into pension after and get tax relief that way. Speak to the Governments free pension advice service. As mentioned above (100% with them) the only advantage of lump sum v's monthly is that you may end up paying just 2% on some of the payment rather than 12% on lots (NIC). Pension is not the best course for everyone and you must look at your long term plans i.e. do you need the cash now? Are you happy with pension risk? What if pension rules change etc? Personally, I plough into pension and will be picking a low tax jurisdiction to retire and draw-down subject to local rules and treaty. 

Jeremy535897

Antigua might be worth a look if you like the Caribbean, KofS.

chrisbur

So far the OP has not given any details of the amount involved so it is impossible to say which would be the better option, three monthly  payments or one lump sum.  To work out the better option you would need to know the NIable pay involved in the lump sum and the same for the three monthly payments.  With the three months pay you would get three months of allowance where no NI is payable then probably pay 12% above that, while with the lump sum you get one month's NI allowance but if the payment is high enough you will then only pay 2% on some of it instead of the 12%.