Redundancy - Tax and tax rebate

kerri_gt

This is quite specific so hoping someone can help.

OH is taking redundancy in March next year (final work day 31st March, final wage payment end of April). He is very specific that he plans to take a year out of work following that but has been advise conflicting information about what tax from his final working year and redundancy pay he may or may not be eligible for refund and when.

He won't be receiving any salary after leaving this job but does receive a pension from previous employment 

• Would a tax refund happen automatically or does he have to contact HMRC to action it?
• If he knows he's not going to be working from 1st April 2022 - can he contact HMRC at that point and request a refund? 
• Is there a cap on what he would get back?

TIA

chrisbur

I would suggest that when he has his P45 he contacts HMRC and advises them that his only taxable income for the rest of the tax year will be his pension and he would like his tax code along with pay and tax from his P45 transferred to his pension.  That way any tax due back as the year progresses will be made with his pension payments.  You have not given any details of figures involved so cannot say that any refunds will be due, but assuming his pension is below his personal tax allowance there will be some rebate.  May also be due some back if tax on P45 includes any higher rate tax.   

kerri_gt

@chrisbur
Thanks for your reply. To add a few more details, his pension does fall under hid personal allowance. Some of his regular annual salary is taxed at the higher rate as standard, and there will be redundancy payment above the allowable tax free amount which would thus fall under higher rate also. 

chrisbur

kerri_gt said:

@chrisbur
Thanks for your reply. To add a few more details, his pension does fall under hid personal allowance. Some of his regular annual salary is taxed at the higher rate as standard, and there will be redundancy payment above the allowable tax free amount which would thus fall under higher rate also. 

So the P45 will include some tax at 40% and the pension is less than the personal allowance.  Once the tax code and earnings/tax are moved to the pension he will have an increase in his tax allowance and 20% band allowance each month.  This will result in a tax rebate being added to his pension payments, made up partly from the increase in personal allowance and partly from some of the 40% tax paid being converted to 20% tax.  The rebate for personal allowance will continue until the tax year ends or all tax has been rebated whichever is first and the 40 to 20 % rebate will continue until all have been converted or the tax year ends again whichever is first. 
All this assumes there is no other taxable income that may affect it.
The process may take a while to start so might be a month or more on the old code but that will not alter the payments it will just mean a longer wait for it to start, so best to get onto HMRC as soon as he has the P45 and request the tax code be put onto the pension on a cumulative basis with the pay and tax being transferred.  When it starts it will be backdated.
Regarding you question about a cap.  The cap will be the total tax he owes at the tax year end based on his total taxable pay. As the rebates are paid his tax paid to date will reduce, if it goes down to zero that ends it and if there is still some tax paid to date at month 12 that is the tax he has to pay on those earnings so also ending the rebates. 

Dazed_and_C0nfused

Probably stating the obvious but I presume you realise that any tax refund will only relate to the payment made at the end of April.

but has been advise conflicting information about what tax from his final working year and redundancy pay he may or may not be eligible for refund and when

kerri_gt

Dazed_and_C0nfused said:

Probably stating the obvious but I presume you realise that any tax refund will only relate to the payment made at the end of April.

but has been advise conflicting information about what tax from his final working year and redundancy pay he may or may not be eligible for refund and when

Tbh he's been told different things, but given his final salary / redundancy pay will be paid at the end of April, that's the payment of concern anyway. But thanks

getmore4less

kerri_gt said:

Dazed_and_C0nfused said:

Probably stating the obvious but I presume you realise that any tax refund will only relate to the payment made at the end of April.

but has been advise conflicting information about what tax from his final working year and redundancy pay he may or may not be eligible for refund and when

Tbh he's been told different things, but given his final salary / redundancy pay will be paid at the end of April, that's the payment of concern anyway. But thanks

The key will be making sure that falls into the 22/23 tax year