Tax On Redundancy

SARAH570_2

Does anyone know if you are made redundant and receive a redundancy payment on top of your normal salary in the same tax year, how much can you receive before you would be taxed at the higher tax rate? I seem to think it is either £30,000 or £37,000, am I correct.?

helen_dui

I was made redundant just before last Christmas and had to fight tooth and nail for my last month's wages that I was owed. I had to go through the Redundancy Payments Service and when I finally got my money, found out that I had been massively taxed on it, and I only earned £16,000 a year. They took more tax from the payment, which covered about 2 1/2 - 3 weeks wages, than I had previously normally had taken in a regular month. I wrote to the tax office/inland revenue to complain but they have as yet ignored me. Think it is something to do with the fact that I got another job after a few months and they screw me for tax because of the amount of money I eanred motnhs after my original redundancy. A con I know but what can you do? You get screwed over being made redndant then screwed over when they eventually pay you!
Hope the same doesn't happen to you and your tax is sorted ok.

paul_h

Any redundancy payment is tax free up to £30,000. You then pay tax on any amount over £30,000 as if it was earnings. So if your redundancy payment is less than £30,0000, there is no tax to pay.

Any pay in lieu of notice, bonus payments, accrued holiday pay, etc. is taxed as normal earnings.

If you think you have paid too much tax, fill in and submit a P50 repayment form after the end of the tax year, available from any IR office or download from the IR website. You will need your P45 and also your P60 if you started another job during the same tax year.

As tax is normally calculated weekly or monthly, and there are no earnings for a period, your average earnings will be less and there is often a repayment made under these circumstances.

Download the IR Redundancy factsheet from here -

http://www.hmrc.gov.uk/payetaxpayers/tmaredundancy.shtml

Twopints

SARAH570 wrote:

Does anyone know if you are made redundant and receive a redundancy payment on top of your normal salary in the same tax year, how much can you receive before you would be taxed at the higher tax rate? I seem to think it is either £30,000 or £37,000, am I correct.?

I think you are mixing up two different things. If you are made redundant you can receive a redundancy payment of up to £30,000 tax-free, as long as it is done correctly. If you get more than £30k, then you are taxed at your highest rate on anything over £30k.

The higher rate of tax, 40%, starts being charged on taxable income of more than £32,400 to which you can add your tax-free allowance of £4895 - this gives a figure of £37,295. This is the amount that you can earn before you start paying the higher rate. [THIS ASSUMES STANDARD TAX CODES].

paul_h

Good reply TwoPints, sounds so much simpler than mine

YorkshireBoy

paul_h wrote:

Any pay in lieu of notice......is taxed as normal earnings.

Have they changed the rules? I was made redundant just over 2 years ago and my "3 months in lieu", along with my Government and company severance payments, was not taxed.

paul_h

YorkshireBoy wrote:

Have they changed the rules? I was made redundant just over 2 years ago and my "3 months in lieu", along with my Government and company severance payments, was not taxed.

Not as far as I know, 'pay in lieu' when lumped together with redundancy payments is classed as what the IR term unpaid wages which are subject to tax and NI. Are you sure these weren't taxed at source before being added to your redundancy payment?

YorkshireBoy

paul_h wrote:

Not as far as I know, 'pay in lieu' when lumped together with redundancy payments is classed as what the IR term unpaid wages which are subject to tax and NI.

I remember having a discussion* recently on here with someone in a similar situation. I've just checked on the HMRC website and it's to do with PILON's and "gardening leave". See link below...

http://www.hmrc.gov.uk/manuals/eimanual/EIM12975.htm

paul_h wrote:

Are you sure these weren't taxed at source before being added to your redundancy payment?

Absolutely positive!

*EDIT: Tried to link to the previous discussion but lost it! If you "search the chat forum" for PILON it will bring up a couple of threads where we discussed the above HMRC document/policy.

paul_h

YorkshireBoy wrote:

I remember having a discussion recently on here with someone in a similar situation. I've just checked on the HMRC website and it's to do with PILON's and "gardening leave". See link below...

http://www.hmrc.gov.uk/manuals/eimanual/EIM12975.htm

Very interesting info that, thanks.

It looks like a very grey area, and how pay in lieu is addressed contractually. However as in most cases what is termed 'pay in lieu' would be incorrectly called this as proper notice would be given and this would be regarded as 'gardening leave', asnd so would be taxable.

Unfortunately it didn't affect me when I took voluntary redundancy as I had to work my notice...

Spendless

When I was made redundant at end of 97 I was given 6 weeks in lieu of noice and didn't pay tax on it. I didn't receive any holiday pay as our holiday year ran jan-dec and I was made redundant end of dec so had used that years holiday entitlement.

Whilst very grateful for the extra dosh I didn't really understand why I didn't pay tax,. As far as the job centre was concerned I was 'employed' for those 6 weeks so couldn't claim JSA till the time was up and I'd have paid tax if I'd have gone to work for those 6 weeks. As I say not moaning about getting the extra but was always intrigued as to why-and assume this is a loophole that has since been closed.

theGrinch

I think its tax free up to £30,000.

The figure hasnt changed for over 14 years. My father was made redundant in 1991 and the figure was the same. Is this a stealth tax?

I dont know if you are a trade union member or not, or whether your redundancy payment and issues are being handled by a trade union. if they are then I suggest you address your points to them