Redundancy, future employment and tax implications

Missy1975

 I was made redundant on the 29th May and stand to receive just under £55,000 redundancy pay.  I have secured another job which I start in a couple of weeks with a £25,000 salary.  I am aware that the first £30,000 of redundancy will be tax free therefore my total income for the year will be just under the 40% tax bracket.  Can any of you much more intelligent people than me confirm my thinking that initially for the first few months that I will be taxed at the higher rate and that as the year progresses, I will get this overpayment back as it becomes apparent that my total earnings for the year will be below the 40% bracket? Kind Regards.

Dazed_and_C0nfused

If you hand a P45 in to your new employer with the pay from the old employment and are on a cumulative tax code then yes, tax should be correct each pay day.

Paying less in the short term at the new job.

General_Grant

Dazed_and_C0nfused said:

If you hand a P45 in to your new employer with the pay from the old employment and are on a cumulative tax code then yes, tax should be correct each pay day.

Paying less in the short term at the new job.

?????

Surely handing in a correct P45 will mean the employer would deduct the correct tax but it will be more in the earlier months than later on because £25,000 of redundancy pay will be included in the calculation.  It is that payment which is front-loaded and surely its effect reduces over the course of the tax year. 

chrisbur

General_Grant said:

Dazed_and_C0nfused said:

If you hand a P45 in to your new employer with the pay from the old employment and are on a cumulative tax code then yes, tax should be correct each pay day.

Paying less in the short term at the new job.

?????

Surely handing in a correct P45 will mean the employer would deduct the correct tax but it will be more in the earlier months than later on because £25,000 of redundancy pay will be included in the calculation.  It is that payment which is front-loaded and surely its effect reduces over the course of the tax year. 

If we assume that there is no overlap of tax months between old and new job then....
The new job has an annual salary of £25000 so each month for that salary there will be some unused 20% tax allowance.  Exact figures are not known but on limited details it would seem highly likely that the OP has paid some 40% tax on their combined salary and redundancy so as each payday comes in the new job some of that 40% tax will be converted to 20% tax as the 20% tax band increases each month by more than the salary paid in the new job.  
It is this converting 40% tax to 20% tax that will reduce the tax due each month untill either the tax year ends or all 40% tax gas been converted.  If the 40% tax has all been converted before the tax year end then tax paid on the new salary will go up to normal tax as the 40% to 20% will no longer apply.
If there is overlap same applies but will not happen until second payday in new job.
The OP is correct in what they see is going to happen though not quite in their explanation for it.

Slightly simplified example..
Assume 40% tax has been paid and new employer pays 2083 for the following tax month.
The combined tax allowance and 20% band has gone up by 4200 (aprox) so over 2000 is changed from 40% tax to 20% tax reducing the tax which would normally be taken if no adjustment was due by about £400  (Assuming enough 40% tax to convert)

KingOfSnake

It would be interesting to see how this one panned-out. There are some quite basic points and principles.
1. Was the £55K redundancy purely stat and enhanced redundancy, or did it include elements of notice pay? If notice was included, this should be carved out as "PENP" and taxed & NIC'd in full. Also, we have to assume there was consultation (if applicable) and not payment in lieu of consultation as this will fall under the £30,000 umbrella but be liable to NIC (unusual situation but mentioned for completeness).
1b. If any element did include notice, but you worked your notice there is a good argument for not having PENP taxed and NIC'd at source. 
2. We also have to assume that the £55K did not include any payment for entering into restrictive undertakings or reaffirming any current contractual restrictions. Finally, given the name "1975" we also have to assume that this was not "an early retirement". 
3. Then we get on to the mechanics. Assuming all of the above, and £55K was the pure compensation element (stat and enhanced) then it depends on whether the employer paid this pre or post P45. It is their discretion. If pre-P45 then the excess over £30,000 (and again, being very techy about this, we have to assume no previous redundancy payments made by the same employer) i.e. £25K is taxed. It will be added to your normal pay in the period and taxed according to your tax code (which we don't know if you have a cumulative or a "week 1/ month 1" tax code. In any case, if this was being paid in Month 2 of the tax year you would only have 2/12th of your personal allowance (2 x £1,047), 2/12ths of your basic rate (2 x £3,141) and 2/12ths of your higher rate (2 x £6,238) to use, and that is to include any salary paid to date. As such, it is almost certain that 45% tax will be withheld (or more if you are a Scottish taxpayer). Just because it is withheld does not mean it is due.
4. Next, if it wasn't added to your salary to date as a pre-P45 payment, it becomes a post P45 payment (will not appear on your P45 but you should get an additional tax statement from the ex-employer in addition to your P45). If post P45 then there is no personal allowance and code 0T (W1 or M1) is used (or S0T if Scottish or C0T is Welsh). This then taxes the first £3,141 at basic rate, the next £6,238 at higher rate and the balance at 45%. As the "pay and tax" will not appear on the P45, your new employer will not take them into consideration when doing your M3 pay run.
5. Either way, on a £25K new salary (no idea what the old salary was) it is almost certain that you would have overpaid tax by the end of the financial year in April 24. You can wait for HMRC to play catch-up, or submit a repayment request (I prefer R40 as they are simple) but I think you can now do it via online tax account.
Don't try calling HMRC - they have disconnected their helplines to improve customer service.....