Redundancy - Paying tax on notice period not worked

Hi All,

Can someone please help me with a tricky issue?

I recently took voluntary redundancy from work and as part of the settlement agreement, it was agreed that I wouldn't have to work my notice period. 
Neither would I be paid in lieu of the 3 month notice period.

However when i received my settlement payment, I found that I had been taxed for the entire notice at a considerable rate (just over 40%).

Is this right?
Should the company have done this?

Any help is much appreciated.

Thanks.
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Comments

  • DullGreyGuy
    DullGreyGuy Posts: 9,181
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    You will pay income tax on your CiL settlement as its still pay. 

    If it should be 40% will depend on what your earnings are but at times a one off large payment can mess up tax for that month but it sorts itself out over the next few payments.
  • Luke_321
    Luke_321 Posts: 6
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    Thanks for your help.

    I guess my main question is whether i should have been taxed in the first place if i never worked the notice period, nor was i paid the notice period in lieu.

    This is almost 10k in tax for a notice period i never worked.
  • chrisbur
    chrisbur Posts: 4,014
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    edited 6 July 2023 at 3:03PM
    To be clear on what has happened can you advise from your last payslip
    Taxable gross
    Tax paid
    Tax code
    Tax basis  eg cumulative non cumulative X 1 0
    NI pension and any other deductions
    Taxable gross to date
    Tax paid to date
    Week/Month number or date paid

    And from payslip before this 
    Taxable gross to date
    Tax paid to date 
  • Luke_321
    Luke_321 Posts: 6
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    Thanks Chris.

    It reads:

    PENP 12,646
    Redundancy Pay NP NN 3,822
    Redundancy Pay NP NN 30,000

    PAYE 6,769
    NI A 318

    Tax code 1257L CUMUL
    Tax Period 1

    This was in April so no other pay/tax considerations.

    Does that help?
  • chrisbur
    chrisbur Posts: 4,014
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    edited 7 July 2023 at 9:19AM
    Can you advise the cumulative figures for taxable gross and tax paid
    Also details of other deductions and net pay so I can see what the gross was.
    Are you monthly/weekly/two weekly/four weekly paid

    What are the figures on your P45
  • Luke_321
    Luke_321 Posts: 6
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    Hi Chris,

    thanks again for coming back to me.

    I am paid monthly.

    The gross pay was 20,016
    taxable pay 19,539

    The slight discrepancy in figures is due to the two weeks salary i was paid in April before becoming redundant.

    My P45 states:
    Total pay to date - 3,059
    Total tax to date - 402

    Does that help at all?

    Grateful for your support.
  • chrisbur
    chrisbur Posts: 4,014
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    Obviously the P45 figure is not including the taxable pay of 19539.
    However if I take the 19539 the tax due here is 7170.75
    The tax figures given so far are 402 and 6769 which add up to 7171

    Was the P45 issued before the extra payment was made?

    Can you advise the amount(s) of money that you received
    Eg £x  for the 3089 £x for the extra payment £x for redundancy then anything else not covered by these.
    Then list all deductions I can then work back to see what you have received. 
  • razord
    razord Posts: 566
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    edited 7 July 2023 at 1:30PM
    What you work or don't work has no impact on the amount of tax you pay.

    The only thing that matters is the total amount that the company has paid you.

    If that number suddenly goes up, PAYE will assume you will continue to get paid that for the rest of the year, and so may knock you up a tax bracket. That will be sorted out at the end of the tax year if that's your last PAYE payment, or over coming pay periods if you have a new job also paid by PAYE.
  • Undervalued
    Undervalued Posts: 8,817
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    Luke_321 said:
    Thanks for your help.

    I guess my main question is whether i should have been taxed in the first place if i never worked the notice period, nor was i paid the notice period in lieu.

    This is almost 10k in tax for a notice period i never worked.
    Yes you should.

    You had either a statutory right or a contractual right to your notice pay, which is taxable. You can't forgo the notice pay and add an equivalent sum onto your redundancy / compensation (which is tax free up to £30K) so as to avoid the tax due on the notice pay.  
  • Luke_321
    Luke_321 Posts: 6
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    chrisbur said:
    Obviously the P45 figure is not including the taxable pay of 19539.
    However if I take the 19539 the tax due here is 7170.75
    The tax figures given so far are 402 and 6769 which add up to 7171

    Was the P45 issued before the extra payment was made?

    Can you advise the amount(s) of money that you received
    Eg £x  for the 3089 £x for the extra payment £x for redundancy then anything else not covered by these.
    Then list all deductions I can then work back to see what you have received. 
    Hi Chris,

    The P45 was issued after both pay slips were issued.

    On the first payslip:
    Gross Pay 3537.42 (taxable pay 3059.87)
    PAYE 402.2
    NI A 298.73
    Pension 477.55

    Net Pay - 2358.94

    Redundancy Slip:
    Gross Pay (YTD) 20016.97
    Taxable Pay (YTD) 19539.42

    PENP 12646.12
    Redundancy Pay NP NN 3833.43
    Redundancy Pay NT 30000

    PAYE 6769
    NI A 318.08

    NET PAY - 39392.47

    The tax paid is 7171.20 as suggested but i guess my question is:
    a. Should i be taxed for a notice period not worked or paid?
    b. Should it be taxed at such a high rate?

    Forgive me if I'm missing something obvious.
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