Tax on redundancy pay (again!)

Bimbly

By the time I am made redundant in early December, I will have earned around £19,000 in taxable salary. My redundancy pay is around £80,000. Total taxable for the financial year is, therefore, £69,000.

Will I be taxed as if £69,000 is all I am being paid this year? Does HMRC do anything weird like assume I'll continue earning through the year and impose more tax? I would pay around £7.5k at 20% and £7.5k at 40% on on £69k.

I don't expect to earn anything further in this financial year.

NB: My employer won't pay any of this money into a pension for me, so I am planning on making my own contribution and claiming back overpaid tax.

chrisbur

You will certainly not be taxed as if you have only earned £69000 in total for this year. PAYE calculates tax on the what you have earned as taxable pay up to the date you are paid it. If we assume you are paid in month 9 of the tax year PAYE takes your taxable pay to date for those 9 months and allows you 9/12 of your tax free allowance, 9/12 of your 20% tax band allowance 9/12 of your 40% tax band allowance etc. That year to date tax due figure is then reduced by the total tax you have paid so far during months one to eight and the remaining tax is what you pay for month 9.

If you do not plan to have further employment you can complete a P50 declaring this so that you tax is recalculated on the full tax year.

https://www.gov.uk/guidance/claim-back-income-tax-when-youve-stopped-working

Grumpy_chap

Duplicate thread

https://forums.moneysavingexpert.com/discussion/6684603/claiming-back-tax

Bimbly

https://forums.moneysavingexpert.com/discussion/comment/82149286#Comment_82149286

No. Two different questions.

Bimbly

"You will certainly not be taxed as if you have only earned £69000 in total for this year. PAYE calculates tax on the what you have earned as taxable pay up to the date you are paid it."

But if I am taxed on what I have earned as taxable pay up to the date I have paid it, then surely I will be taxed on having earned £69,000 in the tax year? £19,000 PAYE up until + £50,000 taxable redundancy = £69,000.

This is what I am trying to work out.

DRS1

I think the point is that £69k to date is not the same as £69k in total. There is a fair bit of the tax year left. You might get another £69 in that period.

sheramber

https://forums.moneysavingexpert.com/discussion/comment/82149460#Comment_82149460

You will be taxed on having earned £69k for the number of months of the tax year that apply up the payment date.

If your last pay date is month 9, then you will be taxed on having earned. £69k for 9 months.

monkey-fingers

As an aside, whether or not the company will or won't put it into a pension, if you put it into a SIPP, you can claim the tax back automatically for the first 20%, then you'll have to do a self-assessment to the get the other 20% back.