Notice served. Question about tax
Discussion
Hi PH,
I spoke to my employer and asked for an exit package- for various reasons. I have this in writing. After 2 weeks my direct manager came back to me on a call and said that due to restructuring my role was terminated! But, but I kind of told you I was resigning...
Anyway I got an official letter through and there are words like-
'undertaking a
critical review of team structures and roles across the business to identify where it can make
efficiencies and address the Company’s current priorities in the most effective way.'
and
'As a result of the above exercise, it has been decided that the role you hold of XXXXX, will not continue.'
and
'Therefore, it
is with regret that I must confirm, as advised today, that this decision will bring about an end
to your employment with XXX'
and
'You were served with formal notice today and as per your contract of employment are
entitled to receive 6 months’ notice, which will take effect from the day after notice was
served. It has been agreed that you will not need to work your notice period, but instead we
shall pay you in lieu of your notice period, in accordance with your contract of employment.'
So my question is - would I be able to receive any of the lump sum with tax saving- it will be PAYE so minus NI and Tax.
They are a nasty bunch, pleased to be out.
Thanks for any guidance.
I spoke to my employer and asked for an exit package- for various reasons. I have this in writing. After 2 weeks my direct manager came back to me on a call and said that due to restructuring my role was terminated! But, but I kind of told you I was resigning...
Anyway I got an official letter through and there are words like-
'undertaking a
critical review of team structures and roles across the business to identify where it can make
efficiencies and address the Company’s current priorities in the most effective way.'
and
'As a result of the above exercise, it has been decided that the role you hold of XXXXX, will not continue.'
and
'Therefore, it
is with regret that I must confirm, as advised today, that this decision will bring about an end
to your employment with XXX'
and
'You were served with formal notice today and as per your contract of employment are
entitled to receive 6 months’ notice, which will take effect from the day after notice was
served. It has been agreed that you will not need to work your notice period, but instead we
shall pay you in lieu of your notice period, in accordance with your contract of employment.'
So my question is - would I be able to receive any of the lump sum with tax saving- it will be PAYE so minus NI and Tax.
They are a nasty bunch, pleased to be out.
Thanks for any guidance.
Sounds like they've repurposed redundancy wording/paperwork to your situation; in essence the end result is the same but there are better ways to word it, as right now it sounds like they've eliminated your position rather than it being a mutual agreement between both parties.
Anyway, according to what you have written above the amount payable is solely pay in lieu of notice and therefore subject to standard taxation, so the answer is no I'm afraid. One possibility might be to pay a chunk in your pension, assuming you have one with them and it is salary sacrifice, as that would come off your pay pre-tax. But you would need to take IFA on that if you wanted to do it, make sure if was within your annual and lifetime allowance etc.
Only redundancy pay is paid tax free; notice pay/PILON is not.
Anyway, according to what you have written above the amount payable is solely pay in lieu of notice and therefore subject to standard taxation, so the answer is no I'm afraid. One possibility might be to pay a chunk in your pension, assuming you have one with them and it is salary sacrifice, as that would come off your pay pre-tax. But you would need to take IFA on that if you wanted to do it, make sure if was within your annual and lifetime allowance etc.
Only redundancy pay is paid tax free; notice pay/PILON is not.
parabolica said:
Only redundancy pay is paid tax free; notice pay/PILON is not.
Up to £30k, IINM.TopTrump said:
Hi PH,
I spoke to my employer and asked for an exit package- for various reasons. I have this in writing. After 2 weeks my direct manager came back to me on a call and said that due to restructuring my role was terminated! But, but I kind of told you I was resigning...
I don't think you said you were resigning.....you asked for an exit package.I spoke to my employer and asked for an exit package- for various reasons. I have this in writing. After 2 weeks my direct manager came back to me on a call and said that due to restructuring my role was terminated! But, but I kind of told you I was resigning...
Anyway, good luck - sounds like you're well out of it.
TopTrump said:
They are a nasty bunch, pleased to be out.
Except they seem to have just given you 6 months wages, for nothing, at your request. They could have told you to resign if you like, they could have made you work your notice in a dark basement, or put you on gardening leave... Sounds like you are free to get a new job at once if you want - or sign on to the dole even, with a nice lump sum in your back pocket 
I mean you COULD go back and ask if the first 30k could somehow be made to be redundancy to avoid tax/NI, and change the rest to a compromise agreement, but that's hassle for them so why would they? If its redundancy they probably should have followed some process, and it would cost THEM in lawyer fees to draft/review the agreement etc. Sounds like you got a damn fine result even if you have to pay your tax bill.
You don't say how long you have been there?
paulrockliffe said:
There is zero chance of a redundancy payment at this point, if they went down that route, they would open themselves up to a slam-dunk unfair dismissal claim because they have already failed to follow the statutory redundancy process.
But surely that's only the case if the OP takes them to ET? And why would he do that when having ti classed as redundancy is in HIS favour?What is the OP's notice period and how long have they been working for the company?
Easy enough to work out how much redundancy they are entitled to here https://www.moneyhelper.org.uk/en/work/losing-your...
but PILON will be tax and ni deducted.
Easy enough to work out how much redundancy they are entitled to here https://www.moneyhelper.org.uk/en/work/losing-your...
but PILON will be tax and ni deducted.
Countdown said:
But surely that's only the case if the OP takes them to ET? And why would he do that when having ti classed as redundancy is in HIS favour?
Why wouldn't they? He's got the money, there's more money on the table because the company would have f
ked up. If the company have not paid the tax correctly on the 'redundancy' element of the severance package then it is for them to then gross it up to correct the tax situation, so there is no risk to the employee. My point was that the company will already know this, it's obvious by their actions, so they are not going to be amenable to rewriting the past in a way that does not benefit them and creates a solid risk for them.
paulrockliffe said:
Countdown said:
But surely that's only the case if the OP takes them to ET? And why would he do that when having ti classed as redundancy is in HIS favour?
Why wouldn't they? He's got the money, there's more money on the table because the company would have fked up. If the company have not paid the tax correctly on the 'redundancy' element of the severance package then it is for them to then gross it up to correct the tax situation, so there is no risk to the employee. My point was that the company will already know this, it's obvious by their actions, so they are not going to be amenable to rewriting the past in a way that does not benefit them and creates a solid risk for them.
Let's imagine the OP saves £12k (plus NI) if he can get his dismissal classed as "Redundancy". So he asks the Employer and they (out of the goodness of their heart) agree to make him "redundant". he saves a shedload of tax and NI and the Employer also saves a bit of NI. Why would the OP then take the Employer to Tribunal? is it to screw the Employer over after the Employer did him a favour?
By the way if the Tribunal decides it wasn't redudancy then he will have udnerpaid tax. the Employer will deduct this from any compensation payment made to the OP and if that doesn't cover the shortfall then HMRC will come after HIM, not the Employer.
B9 said:
Isn't a compromise agreement the way around this? First 30k tax free, no? Also protects employer from breach of process etc
But costs the employer a bit extra to draw up and only saves them a bit of NI. And opens them up to being sued for not following process. They seem to have already been very generous.The OP has not told us how long he's worked there, which might make a difference to the redundancy outcome but NOT a compromise agreement. If he had 30 years service, I'm sure he'd have mentioned it
Yep, agreed. Back in my box - there were some really poor actions from my employers side previous to all this which I won't get into here though. If they didn't want to pay me I could definitely raise a claim/case against them. My story with them ends on a massive high, I did loads for them and delivered everything they asked and more
Edited by TopTrump on Wednesday 20th September 20:09
B9 said:
Isn't a compromise agreement the way around this? First 30k tax free, no? Also protects employer from breach of process etc
The first 30k of redundancy payments being tax-free is a lifetime allowance. However it's done, only the redundancy element of the payment would be tax free, and only the element that is either Statutory or enhanced via the Employee's contract. Payment in lieu of notice, or compensatory payments are all taxable.
You can't just negotiate a figure and then not pay tax on £30k of it. It's clear from what the OP has posted that it's all taxable.
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