Tax question -redundancy payment

[captainzep]

I'm aware that anything under £30k is tax free.

My last day will be Mar 31st and I'll be paid the redundancy amount in the Apr pay run.

Will I be required to pay 40% tax for any money above the £30k threshold?

There are no other taxable benefits as part of the package and I don't have the option to pay a proportion into my pension -which I understand is a legit tax dodge for some.

[Eric Mc]

captainzep said:

I'm aware that anything under £30k is tax free.

Not true.

You need to be VERY careful on this one.

Redundancy pay is taxable in the normal way.

A "Gratuity" payment e.g. a Golden Handshake - is tax free up to an amount of £30,000.

Not the same thing.

Check your employment contract and/or any correspondence with your employer to see how they have referred to your payment i.e. have they simply called it a "redundancy payment" or are they referring to a "gratuity".

If the former, it is taxable. If the latter, it may not be.

[captainzep]

Thanks Eric.

I stated the £30k tax free bit with some confidence having read this from the HMRC:

http://www.hmrc.gov.uk/guidance/redundancy-factshe...

But I'll check all the same.

[hman]

have just been through this myself.

The statutory redundancy is tax free ( £300 or so per year) the rest is all taxable.

so I got 3 months notice period pay (taxed) and 3 x £300ish for 3 years service (untaxed)


and 3 months off on paid gardening leave whilst I went through consultation.



Kerching!, the nicest way to leave a company!

[Eric Mc]

captainzep said:

Thanks Eric.

I stated the £30k tax free bit with some confidence having read this from the HMRC:

http://www.hmrc.gov.uk/guidance/redundancy-factshe...

But I'll check all the same.

Link won't open for me but the main thing to be aware of is that the £30,000 WILL BE TAXABLE if it is given to you as a payment for services performed by you as an employee of the company/business. For the £30,000 to be tax free, it must have been paid to you by your employers "out of the goodness of their heart" and it must not be related to services rendered or be part of an agreement written into your employment contract.

[captainzep]

Thanks again Eric. You've probably earned yourself an internet pint there, -or a half depending on my tax liability...

[Eric Mc]

I've seen quite a few of these situations over the years and I've seen the letters which employers give to their employees when making these types of payments. They usually say something like

"We believe this payment to be tax free on the basis that it constitutes an "ex gratia" payment and is not in respect of services rendered to XYZ Ltd. However, if any tax ar National Insurance becomes due at a later date, the employee fully undertakes to bear this liability personally with no recourse to XYZ Ltd".

They sometimes also state that it is the individual's responsibility to report this payment to HMRC

Essentially, they try to cover their tails.

Edited by Eric Mc on Friday 7th January 19:10

[2 sMoKiN bArReLs]

Eric

You're confusing redundancy pay with PILON. Statutory redundancy pay is free of tax (within certain limits).

(as already stated above)

Edited by 2 sMoKiN bArReLs on Friday 7th January 19:28

[Eric Mc]

2 sMoKiN bArReLs said:

Eric

You're confusing redundancy pay with PILON. Statutory redundancy pay is free of tax (within certain limits).

(as already stated above)

Edited by 2 sMoKiN bArReLs on Friday 7th January 19:28

No I wasn't. I'm aware of the rules for Statutory Redundancy - which is calculated with reference to to years of service, age etc.

HMRC are well aware that employers sometimes will pay people extra amounts over and above their statutory obligations. These additional payments are fully taxable UNLESS they are "ex gratia" or part of an "ex gratia" payment. In order to satisfy the ex gratia rules, they MUST NOT be seen to be part of a normal payment, such as PILON.

I know, because I've had to fight on behalf of my clients in a couple of such situations to stop HMRC trying to tax the payout they received when they left.

[2 sMoKiN bArReLs]

Eric Mc said:

2 sMoKiN bArReLs said:

Eric

You're confusing redundancy pay with PILON. Statutory redundancy pay is free of tax (within certain limits).

(as already stated above)

[/footnote]

No I wasn't. I'm aware of the rules for Statutory Redundancy - which is calculated with reference to to years of service, age etc.

You agree that this is tax free though? (up to the total limits)

Edited by 2 sMoKiN bArReLs on Friday 7th January 19:58

[captainzep]

For clarity this is a standard NHS redundancy set out in national 'Agenda for Change' guidelines equating to a month's salary per year of service. The internet seems to suggest that the £30k threshold stands, although I'm not discounting Eric's advice. Today's termination letter refers to a 'redundancy payment'.

[skeeterm5]

The legal advice I received was that the first 30k of any redundancy payment is tax free.

S

[Eric Mc]

2 sMoKiN bArReLs said:

Eric Mc said:

2 sMoKiN bArReLs said:

Eric

You're confusing redundancy pay with PILON. Statutory redundancy pay is free of tax (within certain limits).

(as already stated above)

[/footnote]

No I wasn't. I'm aware of the rules for Statutory Redundancy - which is calculated with reference to to years of service, age etc.

You agree that this is tax free though? (up to the total limits)

Edited by 2 sMoKiN bArReLs on Friday 7th January 19:58

As long as it satisfies the "gratuity" criteria.

Edited by Eric Mc on Friday 7th January 21:14

[Eric Mc]

skeeterm5 said:

The legal advice I received was that the first 30k of any redundancy payment is tax free.

S

Who provided that advice?

Edited by Eric Mc on Friday 7th January 21:14

[2 sMoKiN bArReLs]

Eric Mc said:

2 sMoKiN bArReLs said:

Eric Mc said:

2 sMoKiN bArReLs said:

Eric

You're confusing redundancy pay with PILON. Statutory redundancy pay is free of tax (within certain limits).

(as already stated above)

[/footnote]

No I wasn't. I'm aware of the rules for Statutory Redundancy - which is calculated with reference to to years of service, age etc.

You agree that this is tax free though? (up to the total limits)

Edited by 2 sMoKiN bArReLs on Friday 7th January 19:58

As long as it satisfies the "gratuity" criteria.

Edited by Eric Mc on Friday 7th January 21:14

I think we'll leave it at that Eric. You are still confusing it with "PILON" which does take the gratuity (i.e. non contractual) thing into account. Stat RDP is always tax free up to the limits, and has no "gratuity" element. (It wouldn't be called statutory )

[LC23]

Sorry but there is conflicting and confusing advice on this thread.

OP - get yourself some specific advice on YOUR position. Redundancy payments are not automatically taxable, however neither are they automatically tax free (up to £30,000) and completely NIC free - remember if it qualifies as a genuine redundancy payment under the "£30,000 regime" then there is NO NIC. The £30,000 is a tax limit.

PILONs are not always taxable and can also be paid free of tax and NIC in certain circumstances. Generally where there is no contractual entitlement to a PILON and the company pay PILON rather than making the individual work their notice period then this can also fall within the £30,000 amount.

OP - I cannot stress this enough. Redundancy payments are not straightforward. Get yourself some advice.

[captainzep]

LC23 said:

OP - I cannot stress this enough. Redundancy payments are not straightforward. Get yourself some advice.

Thanks. Appreciated.

The plan 'b' involves moving the family 300 miles and building a house. Budgets are tight and as such the odd +/-£5k here and there could be pivotal.

Edited by captainzep on Friday 7th January 22:52

[Eric Mc]

I won't say any more on the topic either. I think we've given sufficient info to the OP to make him realise that the whole "redundancy payment" area is quite complex.

[captainzep]

Actually I've changed my mind, and have just put down a deposit on a brand new Peugeot 608.

It'll probably appreciate.

[Eric Mc]

Just make sure you can sell it quickly if Mr Taxman comes looking for his cut.