Which Tax Year Does My Redundancy Impact

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.

Comments

  • Scorpio33
    Scorpio33 Posts: 745 Forumite
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    It is usually on the last date you are employed. From the above info that would be end of March 2024, so it would be the 2023/24 tax year. When it is physically paid is irrelevant, its your last contractual date of employment.
  • chrisbur
    chrisbur Posts: 4,047 Forumite
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    edited 13 March 2023 at 5:29PM

    The GOV.UK site 

    https://www.gov.uk/redundancy-your-rights/tax-and-national-insurance

    advises that....

    "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.

  • irharris
    irharris Posts: 12 Forumite
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    edited 15 March 2023 at 11:13PM
    Many thanks for the replies. 

    However, it looks like that nice Mr Hunt has addressed my problem by upping the annual allowance to £60k

    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.
  • taper
    taper Posts: 13 Forumite
    First Anniversary First Post Combo Breaker
    I’m in exactly the same position as you with a £130k redundancy package in the next 9-18 months. I’m very happy with today’s announcement! Always trying to avoid higher rate tax where I can!
  • wolvoman
    wolvoman Posts: 1,173 Forumite
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    It worries me what companies you work for where you can plan redundancy? How odd.
  • irharris
    irharris Posts: 12 Forumite
    First Anniversary First Post
    In my case it’s a large IT company that always seems to be making redundancies as roles are moved offshore.

    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
  • Snot
    Snot Posts: 61 Forumite
    First Post First Anniversary
    Sorry to reopen an old post, but I have a similar dilemma, was there a definite answer ?

    There seems to be 2 answers,   any Tax is based on the date the employment contract ends  or on the date of the final payslip,  which presumably could be delayed till the next tax year ?
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