Redundancy & Tax
Discussion
A depressing subject I know, but its a topical subject at least...
I'm being made redundant. 5 years with my company, and now I'm one of many in this situation.
I am working through my redundancy package and I have learnt that although my contract doesn't have PILON (Payment in Liew of Notice), it is what my company are wishing me to 'sign up' to.
This means that my notice period will be taxed (an additional kick in the teeth from our tax hungry government).
Has anyone had a similar experience? I'm wondering, as its not in my contract, whether I can argue the point.
Again, apologies for the heavy subject matter.
I'm being made redundant. 5 years with my company, and now I'm one of many in this situation.
I am working through my redundancy package and I have learnt that although my contract doesn't have PILON (Payment in Liew of Notice), it is what my company are wishing me to 'sign up' to.
This means that my notice period will be taxed (an additional kick in the teeth from our tax hungry government).
Has anyone had a similar experience? I'm wondering, as its not in my contract, whether I can argue the point.
Again, apologies for the heavy subject matter.
Payment in lieu is taxed because you would be taxed if still there and earning.
First 30k on redundancy tax free, the rest at your rate of tax.
If they want you to leave, make it easy on both of you and negotiate a way out, get hold of an employment lawyer, and understand your rights, be aware though that constructive dismissal is only worth the redundancy + whatever a judge deems the length of time you would be out of work, it can be derisery.
Make sure you have written into any contract your notice/payments, leave entitlement and any other bonuses etc, before you sign anything away.
You could fight issues, but it may not work out the way you want it to, and could cost you in terms of character and money....
Kip.
First 30k on redundancy tax free, the rest at your rate of tax.
If they want you to leave, make it easy on both of you and negotiate a way out, get hold of an employment lawyer, and understand your rights, be aware though that constructive dismissal is only worth the redundancy + whatever a judge deems the length of time you would be out of work, it can be derisery.
Make sure you have written into any contract your notice/payments, leave entitlement and any other bonuses etc, before you sign anything away.
You could fight issues, but it may not work out the way you want it to, and could cost you in terms of character and money....
Kip.
AFAIK - and I have been through this particular hoop, your PILON will be taxed (mine was)
The first £30K of any redundancy payment will be free of tax. Your redundancy payment - statutory min is approx 1 weeks pay per year of service - min £330 per week - will be taxed over that threshold.
Anyway, I didn't realise it at the time but the redundancy was one of the best things that happened to me.
The first £30K of any redundancy payment will be free of tax. Your redundancy payment - statutory min is approx 1 weeks pay per year of service - min £330 per week - will be taxed over that threshold.
Anyway, I didn't realise it at the time but the redundancy was one of the best things that happened to me.
IF your contract does not allow for PILON you could sign a compromise agreement which would mean an amount could be paid to you tax free as it would be compensation for breach of contract. ie say you were owed 6mths notice and equivalent to 2mths redundancy and the goss amount was £20k (ignore figs) then you could recieve it all "tax free" through a compromise. You would need to take seperate legal advice when you sign as you are signing away your right to sue.
This does not work if your contract allows for PILON becuase they wouldn't be in breach. Some shadier people would agree to change your contract then sack you through compromise however I think if found out you would be got under tax evasion rules.
So yes you can be paid tax free if your contract does not allow for PILON as long as the employer is happy to go compromise route.(they usually are as there is no comback at all on them)
Hope that helps.
This does not work if your contract allows for PILON becuase they wouldn't be in breach. Some shadier people would agree to change your contract then sack you through compromise however I think if found out you would be got under tax evasion rules.
So yes you can be paid tax free if your contract does not allow for PILON as long as the employer is happy to go compromise route.(they usually are as there is no comback at all on them)
Hope that helps.
muley said:
AFAIK - and I have been through this particular hoop, your PILON will be taxed (mine was)
The first £30K of any redundancy payment will be free of tax. Your redundancy payment - statutory min is approx 1 weeks pay per year of service - min £330 per week - will be taxed over that threshold.
Anyway, I didn't realise it at the time but the redundancy was one of the best things that happened to me.
how come? my company is asking people for voluntary redundancys and the dead line is tomorrow! im worried that if i do lose my job how will the bills be paid? how was it the best thing that happened?The first £30K of any redundancy payment will be free of tax. Your redundancy payment - statutory min is approx 1 weeks pay per year of service - min £330 per week - will be taxed over that threshold.
Anyway, I didn't realise it at the time but the redundancy was one of the best things that happened to me.
L500 said:
I'm wondering, as its not in my contract, whether I can argue the point.
Sorry to hear you're being made redundant - it must be ghastly and worrying....If something's not in your contract then it cannot be entered without your consent. You need to agree to any contractual change.
HOWEVER, are they offering you a redundancy payment ahead of statutory guidelines? If so, then you'd have to do the sums and work out which would be better for you.
Thanks guys. A lot of good advice already.
I am being offered the statutory redundancy, in addition the company will be paying me 2 weeks per year service (which I believe is tax free).
However, the difference between taxed / untaxed notice period is a substantial amount (at least to me) in terms of my financial stability over the coming months.
I'll seek independent legal advice about the fact that PILON is not in my contract, and will certainly not sign anything until then.
Thanks again.
I am being offered the statutory redundancy, in addition the company will be paying me 2 weeks per year service (which I believe is tax free).
However, the difference between taxed / untaxed notice period is a substantial amount (at least to me) in terms of my financial stability over the coming months.
I'll seek independent legal advice about the fact that PILON is not in my contract, and will certainly not sign anything until then.
Thanks again.
L500 said:
Thanks guys. A lot of good advice already.
I am being offered the statutory redundancy, in addition the company will be paying me 2 weeks per year service (which I believe is tax free).
However, the difference between taxed / untaxed notice period is a substantial amount (at least to me) in terms of my financial stability over the coming months.
I'll seek independent legal advice about the fact that PILON is not in my contract, and will certainly not sign anything until then.
Thanks again.
It sounds like you're getting a decent deal already. A lot of companies are just giving the week per year statutory payment plus notice. I am being offered the statutory redundancy, in addition the company will be paying me 2 weeks per year service (which I believe is tax free).
However, the difference between taxed / untaxed notice period is a substantial amount (at least to me) in terms of my financial stability over the coming months.
I'll seek independent legal advice about the fact that PILON is not in my contract, and will certainly not sign anything until then.
Thanks again.
The first £30,000 is NOT automatically tax free. It has to be construed as an "ex-gratia" payment to qualify for tax free status. So, if a £30,000 redundancy sum was pre-written into your employment contract, it will not qualify.
Make sure you get a letter from your employer emphasising that the £30,000 is "ex gratia".
Make sure you get a letter from your employer emphasising that the £30,000 is "ex gratia".
krazykris88 said:
muley said:
AFAIK - and I have been through this particular hoop, your PILON will be taxed (mine was)
The first £30K of any redundancy payment will be free of tax. Your redundancy payment - statutory min is approx 1 weeks pay per year of service - min £330 per week - will be taxed over that threshold.
Anyway, I didn't realise it at the time but the redundancy was one of the best things that happened to me.
how come? my company is asking people for voluntary redundancys and the dead line is tomorrow! im worried that if i do lose my job how will the bills be paid? how was it the best thing that happened?The first £30K of any redundancy payment will be free of tax. Your redundancy payment - statutory min is approx 1 weeks pay per year of service - min £330 per week - will be taxed over that threshold.
Anyway, I didn't realise it at the time but the redundancy was one of the best things that happened to me.
Fate often works in mysterious ways...
Whether or not the Pay in Lieu is taxable or not can depend on a number of factors, although calling it Pay in Lieu is never a good idea. If you contract allows you a 3 month notice period, but instead of giving you your lawful entitlement of 3 months notice, they can instead pay you compensation for breach of contract. If it is a compensation payment rather than a PILON (Pay in Lieu of Notice) payment, it can included in your £30,000 "tax free" amount. The fact that your contract does not mention Pay in Lieu would help HMRC accept that this was a genuine compensation payment.
The legislation around termination payments is a minefield, and it is often as much about what a payment is called rather than what a payment is for that determines whether or not it is taxable.
The legislation around termination payments is a minefield, and it is often as much about what a payment is called rather than what a payment is for that determines whether or not it is taxable.
Ok lets see if i can remember mine:
2 months pay (didnt need to turn up) - taxed
1 months consultancy pay - taxed
first 30k of the compromise agreement - tax free
anything above that in the compromise agreement - placed into pension so was tax free.
The last one you must state in the compromise agreement otherwise they will just tax it and give you the cash.
Hope that helps.
2 months pay (didnt need to turn up) - taxed
1 months consultancy pay - taxed
first 30k of the compromise agreement - tax free
anything above that in the compromise agreement - placed into pension so was tax free.
The last one you must state in the compromise agreement otherwise they will just tax it and give you the cash.
Hope that helps.
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