Possibly sleepwalking into a redundancy tax problem
Discussion
Hi all
I have the opportunity of taking voluntary redundancy from a large blue chip who have to shed 1/3 of its workforce (jump before a push situation).
I have been reading up about pensions and tax etc and I consider myself to be not completely thick but I simply cannot get my head around the possible tax implications of the redundancy. HR are singularly unhelpful, and the language they use is really unclear (to me anyway).
I genuinely do not understand what is taxable, what is not and if I am lucky enough to bring in over 100k as a result of the redundancy if I am going to be hit for a f
king massive tax bill where everything becomes magically taxable.
Searching online only results in statutory calculators, am I searching for the wrong thing?
They say my notice pay of 9 months is X
There is a payment of Y 'in recognition for my service.
The gov web site speaks about PENP and PILON. But I have no idea which is which so I cannot tell what gets taxed, what doesn't.
If I add X plus Y and 3.5 months pay to date it takes me very close to 100k. If I then get another job, what do I get taxed on and at what %.
Clearly I am clueless, berate away if you want for my cluelessness but pointers are gratefully received.
I have 4 days to sort this.
I have the opportunity of taking voluntary redundancy from a large blue chip who have to shed 1/3 of its workforce (jump before a push situation).
I have been reading up about pensions and tax etc and I consider myself to be not completely thick but I simply cannot get my head around the possible tax implications of the redundancy. HR are singularly unhelpful, and the language they use is really unclear (to me anyway).
I genuinely do not understand what is taxable, what is not and if I am lucky enough to bring in over 100k as a result of the redundancy if I am going to be hit for a f
king massive tax bill where everything becomes magically taxable.Searching online only results in statutory calculators, am I searching for the wrong thing?
They say my notice pay of 9 months is X
There is a payment of Y 'in recognition for my service.
The gov web site speaks about PENP and PILON. But I have no idea which is which so I cannot tell what gets taxed, what doesn't.
If I add X plus Y and 3.5 months pay to date it takes me very close to 100k. If I then get another job, what do I get taxed on and at what %.
Clearly I am clueless, berate away if you want for my cluelessness but pointers are gratefully received.
I have 4 days to sort this.
Ace-T said:
Hi all
I have the opportunity of taking voluntary redundancy from a large blue chip who have to shed 1/3 of its workforce (jump before a push situation).
I have been reading up about pensions and tax etc and I consider myself to be not completely thick but I simply cannot get my head around the possible tax implications of the redundancy. HR are singularly unhelpful, and the language they use is really unclear (to me anyway).
I genuinely do not understand what is taxable, what is not and if I am lucky enough to bring in over 100k as a result of the redundancy if I am going to be hit for a fking massive tax bill where everything becomes magically taxable.
Searching online only results in statutory calculators, am I searching for the wrong thing?
They say my notice pay of 9 months is X
There is a payment of Y 'in recognition for my service.
The gov web site speaks about PENP and PILON. But I have no idea which is which so I cannot tell what gets taxed, what doesn't.
If I add X plus Y and 3.5 months pay to date it takes me very close to 100k. If I then get another job, what do I get taxed on and at what %.
Clearly I am clueless, berate away if you want for my cluelessness but pointers are gratefully received.
I have 4 days to sort this.
Pilon is taxable, I’d ask for a copy of the proposed settlement, they will need you to take legal advice on it irrespective.I have the opportunity of taking voluntary redundancy from a large blue chip who have to shed 1/3 of its workforce (jump before a push situation).
I have been reading up about pensions and tax etc and I consider myself to be not completely thick but I simply cannot get my head around the possible tax implications of the redundancy. HR are singularly unhelpful, and the language they use is really unclear (to me anyway).
I genuinely do not understand what is taxable, what is not and if I am lucky enough to bring in over 100k as a result of the redundancy if I am going to be hit for a f
king massive tax bill where everything becomes magically taxable.Searching online only results in statutory calculators, am I searching for the wrong thing?
They say my notice pay of 9 months is X
There is a payment of Y 'in recognition for my service.
The gov web site speaks about PENP and PILON. But I have no idea which is which so I cannot tell what gets taxed, what doesn't.
If I add X plus Y and 3.5 months pay to date it takes me very close to 100k. If I then get another job, what do I get taxed on and at what %.
Clearly I am clueless, berate away if you want for my cluelessness but pointers are gratefully received.
I have 4 days to sort this.
bennno said:
Pilon is taxable, I’d ask for a copy of the proposed settlement, they will need you to take legal advice on it irrespective.
I presume PILON is the Pay In Lieu Of Notice i.e 9 months notice payHad access to an estimate but been waiting for the actual offer for the last week, not got it yet. We have 4 days to accept or decline once received. Hardly a huge amount of time to take proper advice.
Thank you for your replies, I appreciate your time..
Edited by Ace-T on Monday 6th July 19:44
Payment in lieu of notice (ie the 9 months) is taxed as normal, as if you were working.
The compensation for loss of role is tax free up to £30K and then the rest is taxed.
You can put the amount above 30K into a pension but subject to the normal allowances and thresholds on pension contributions.
The compensation for loss of role is tax free up to £30K and then the rest is taxed.
You can put the amount above 30K into a pension but subject to the normal allowances and thresholds on pension contributions.
M94 said:
Ace-T I think we work for the same company so I know your pain... unfortunately I’ll get no where near the sum you’re going to receive, as I’ve only worked there for 7 years including my apprenticeship! I miss out on an extra years service by just over 1 month ??
That sucks, really sorry to hear you are affected. If we are in the same company, the chances of extension past the (very close) leaving date are slim to none as the decision has to be justified at very senior levels. I am viewing this as an opportunity to go do something different, I hope you feel the same way.CharlesElliott said:
Payment in lieu of notice (ie the 9 months) is taxed as normal, as if you were working.
The compensation for loss of role is tax free up to £30K and then the rest is taxed.
You can put the amount above 30K into a pension but subject to the normal allowances and thresholds on pension contributions.
Thank you for a very simple, succinct summary. This is not written that simply anywhere I could find The compensation for loss of role is tax free up to £30K and then the rest is taxed.
You can put the amount above 30K into a pension but subject to the normal allowances and thresholds on pension contributions.
The impression I was given and that made me apprehensive was that the entire package (inc the 30k) became taxable if it took annual income over 100k (especially if I got another job), However now I think the person was referring to the tax free personal allowance disappearing rather than the 30k.
Ace-T said:
M94 said:
Ace-T I think we work for the same company so I know your pain... unfortunately I’ll get no where near the sum you’re going to receive, as I’ve only worked there for 7 years including my apprenticeship! I miss out on an extra years service by just over 1 month ??
That sucks, really sorry to hear you are affected. If we are in the same company, the chances of extension past the (very close) leaving date are slim to none as the decision has to be justified at very senior levels. I am viewing this as an opportunity to go do something different, I hope you feel the same way.Yeah highly unlikely is what we’ve been hearing. It’s definitely the same company... They’re actually shutting our side of the business in Scotland so we’re all out a job unfortunately... I loved working with the company as well and it gave me opportunities to work at other sites (heathrow), however there was opportunities to go all over the world. Can’t help but feel I won’t find anywhere else even remotely close when it comes to a great place to work.
Looking to get into a different industry obviously! However it’s tough at the moment considering there’s so many in the same position!
All the best for your future,
M94
M94 said:
Yeah highly unlikely is what we’ve been hearing. It’s definitely the same company... They’re actually shutting our side of the business in Scotland so we’re all out a job unfortunately... I loved working with the company as well and it gave me opportunities to work at other sites (heathrow), however there was opportunities to go all over the world. Can’t help but feel I won’t find anywhere else even remotely close when it comes to a great place to work.
Looking to get into a different industry obviously! However it’s tough at the moment considering there’s so many in the same position!
All the best for your future,
M94
From the folks 'outside' I have been chatting to, having this company on the CV does mean something. I am sure you will be snapped up! All the best to you too. Looking to get into a different industry obviously! However it’s tough at the moment considering there’s so many in the same position!
All the best for your future,
M94
miniman said:
If annual income goes above £100k then your tax-free allowance reduces on a sliding scale down to zero once total income reaches £120k (IIRC).
PILON counts to this, not sure if settlement amount does.
Thanks Miniman, that's what I have (eventually) figured out too, appreciate the confirmation. Can't find anywhere that includes the 30k, so I think that isn't part of it. PILON counts to this, not sure if settlement amount does.
I appreciate the responses. This is not a situation I have ever been in before so I am grateful for you taking the time to reply.
Edited by Ace-T on Monday 6th July 21:10
Ace-T said:
I presume PILON is the Pay In Lieu Of Notice i.e 9 months notice pay
Had access to an estimate but been waiting for the actual offer for the last week, not got it yet. We have 4 days to accept or decline once received. Hardly a huge amount of time to take proper advice.
Thank you for your replies, I appreciate your time.
You might want to post your question in the Finance forum & in particular ask Julian PH if you can contact Nik at IM (see the sticky at the top of the forum for details).Had access to an estimate but been waiting for the actual offer for the last week, not got it yet. We have 4 days to accept or decline once received. Hardly a huge amount of time to take proper advice.
Thank you for your replies, I appreciate your time.
miniman said:
If annual income goes above £100k then your tax-free allowance reduces on a sliding scale down to zero once total income reaches £120k (IIRC).
PILON counts to this, not sure if settlement amount does.
That’s misleading. The settlement amount up to 30k can be tax free. The pilon and any holiday leave due isn’t.PILON counts to this, not sure if settlement amount does.
It’s complex due to tax scrutiny. Most VR will include an amount to have a solicitor review the agreement with you, they will be quite aware of the tax status of payments as will your company.
The £30,000 exempt amount has been in for years. It was brought in to cover "Ex Gratia" payments i.e. payments that are given to a leaving employee as a form of " thank you" for service. The important thing is that the payment is not part of any terms of employment. It should not be "expected" by the employee.
Over the years it has become assumed that there is an automatic £30,000 tax free lump sum redundancy payment. That is not strictly speaking true. The £30,000 will be tax free as long as it is paid in compliance with the terms described above.
The one thing it is not is "Compensation for Loss of Office", which can be tax exempt up to unlimited levels.
Over the years it has become assumed that there is an automatic £30,000 tax free lump sum redundancy payment. That is not strictly speaking true. The £30,000 will be tax free as long as it is paid in compliance with the terms described above.
The one thing it is not is "Compensation for Loss of Office", which can be tax exempt up to unlimited levels.
It looks like you're overthinking this.
The maximum you will get tax free is £30K. The remainder will be taxed as if you had earned it in the tax year that it's paid. It used to be these types of payments were taxed at basic rate, and you would need to pay any additional due in the following January, but I don't think they do that any more.
Assuming that you're receiving a compromise agreement (or whatever the new name is for that) then your company has to pay for you to see and employment lawyer before you sign it. Just get them to check that £30K of your payment will be free of tax and then you're good.
If you then get another job in the same tax year, then you'll be paying tax on the total of what you've been paid in that tax year - old salary, redundancy payments & pilon (-£30K) and new salary. There are ways to reduce your tax liability by putting money into a pension, but you need to have a long hard think about that because if you exceed the lifetime allowance on your pension you won't actually have saved anything from a tax point of view.
The maximum you will get tax free is £30K. The remainder will be taxed as if you had earned it in the tax year that it's paid. It used to be these types of payments were taxed at basic rate, and you would need to pay any additional due in the following January, but I don't think they do that any more.
Assuming that you're receiving a compromise agreement (or whatever the new name is for that) then your company has to pay for you to see and employment lawyer before you sign it. Just get them to check that £30K of your payment will be free of tax and then you're good.
If you then get another job in the same tax year, then you'll be paying tax on the total of what you've been paid in that tax year - old salary, redundancy payments & pilon (-£30K) and new salary. There are ways to reduce your tax liability by putting money into a pension, but you need to have a long hard think about that because if you exceed the lifetime allowance on your pension you won't actually have saved anything from a tax point of view.
Most people should have an inkling if they are close to their c.£1m Lifetime Allowance or not.
Lets’s say that this VR package is worth £90k. If we assume that the first £30k will suffer no tax, the rest will be taxable. However, making a large pension contribution could secure tax relief which would be worth ‘as much as’ the tax bill (ie net nil tax actually paid).
This may sound ambitious from a cash-flow perspective, but if you have another asset that you could liquidate to provide the cash flow that you need, it could work. I.e. pay the £60k into your pension but take whatever you need to take out of any ISA accounts...
As mentioned above, the complications arise given the annual and carried forward pension contribution limits not helped by the fact that we are only a few months into the current year so carried forward allowances (where available) may come into play.
Also keep an eye out for what, if any pension changes are announced on Wednesday.
Good luck. We, or at least the vast majority of us are all living through a complete omnishambles.
Lets’s say that this VR package is worth £90k. If we assume that the first £30k will suffer no tax, the rest will be taxable. However, making a large pension contribution could secure tax relief which would be worth ‘as much as’ the tax bill (ie net nil tax actually paid).
This may sound ambitious from a cash-flow perspective, but if you have another asset that you could liquidate to provide the cash flow that you need, it could work. I.e. pay the £60k into your pension but take whatever you need to take out of any ISA accounts...
As mentioned above, the complications arise given the annual and carried forward pension contribution limits not helped by the fact that we are only a few months into the current year so carried forward allowances (where available) may come into play.
Also keep an eye out for what, if any pension changes are announced on Wednesday.
Good luck. We, or at least the vast majority of us are all living through a complete omnishambles.
Mogul said:
Most people should have an inkling if they are close to their c.£1m Lifetime Allowance or not.
If the OP is 15 or 20 years away from retirement then it's quite likely that he doesn't even know what the lifetime allowance is. If he's been in a well paid job for the past 15 years or so (which from the size of the payout seems likely) then he could be close without knowing it.The reason why I mention it is because no-one else ever seems to. The "advice" is always a blanket "put it into your pension, save tax" without ever stopping to consider the entire picture. I know that when I was made redundant from a decent job after 17 years, if I'd put my redundancy into my pension it would have been a very bad move - yet everyone was advising me and other people in similar situations that you'd be a fool not to put your redundancy into your pension.
Nothing to add on the finance front, just want to wish you all the best whichever way you go. Given our trading update today, it's going to be a tough seven (!) years.
Very strange seeing peoples' last days being put in diaries just over a week from now. Unfortunately for me (fortunately?) I'm too young to retire but also job prospects "out there" are pretty much zero right now so VS was never on the cards.
Very strange seeing peoples' last days being put in diaries just over a week from now. Unfortunately for me (fortunately?) I'm too young to retire but also job prospects "out there" are pretty much zero right now so VS was never on the cards.
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