Which Tax Year Does My Redundancy Impact
in Redundancy & redundancy planning
6 replies 197 views
I'm planning for redundancy and early retirement in the next 12 months. I expect redundancy of around £130k, where I'll get 30k tax free and use salary sacrifice to put the rest into a pension. I know i have a £40k/year tax free allowance on the pension contributions, counting back unused allowance in the previous 3 years - my pension contribution shows a value of around £20k/year for tax purposes.
If I take redundancy such that my finishing date is the end of March 2024, I would receive my final monthly salary, redundancy pay and PILON at the end of April.
Would my redundancy pay and PILON count in the 2023/2024 tax year or the following tax year?
If it counts in the following tax year, my pension contributions will be minimal in that tax year and i can therefore push pretty much all of the £100k redundancy payment (after £30k tax free) into my pension. If it counts in the 2023/2024 tax year, i would have already used around £20k of my tax free pension contribution allowance and would have to pay higher rate tax on around £20k of my redundancy (3 years at £20k, 1 year at almost £40k vs 4 years at £20k) or push my finish date out to end of April 2024.
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The GOV.UK site
"Any tax and National Insurance due on your termination payment will be taken automatically by your employer in your final payslip.
Your employer will put any taxable parts of your termination payment through their payroll and deduct any Income Tax or National Insurance under Pay As You Earn (PAYE)."
PAYE is normally deducted as at the date of payment so would suggest that a payment at the end of April '23 would fall in 23/24 tax year.
There may be some rules relating to redundancy that I am not aware of but nothing seems to be mentioned on the GOV.UK site.
I don't think making it easier to retire early was his aim and I'm not sure I'm the most deserving recipient of limited funds.
My role is customer facing, so less likely to be off shored.
However, I can request voluntary redundancy so that someone whose job is off shored and wants to stay with the company could move into my role.
I’ve been open with my manager, so we can pick a mutually beneficial time in the future, so I don’t leave with no warning and they’re left struggling to cover my work