Taxation/Deductions on Redundancy Payments?

[Mr Scruff]

Apologies if this is the wrong place - not sure if here or 'Jobs/Employment'!

Short story, I've been made reundant after only being at my organisation for 8 months. Redundancy package is 12 weeks pay plus payment in lieu of notice which I'm happy enough with (as happy as you can be when being made redundant!).

I'm confused as to what my tax status would be on this payment? The amount would be made up of redudancy, lieu of notice and 2012 performance-related bonus. I'd like to try and establish how much money I'd be taking home, my wife is currently on maternity leave so money is tight at the best of times, and I don't even know where to start looking for advice.

Many thanks.

[mx stu]

I'm sorry to say it all sounds like it's taxable to me, as it all related to earnings from the employment.

I believe the £30,000 exemption typically only kicks in if the employer is under no legal obligation to make the payments and it's not customary (i.e. nobody else getting made, or that has been made redundant in the past, is getting/ has received the same payments)

[Eric Mc]

Correct. The £30,000 relates to "ex gratia" payments only

[Hyper10]

You are likely to have Tax and NI stopped on some of this especially if it dealt with by HR dept. The £30,000 figure relates to payments made for damages. The Bonus payment will be taxable, pay in leiu of notice may not but HR tend to take the tax as they don't want to argue with HMRC, if your contract says they can pay you in leiu of notice, it is taxable(imo and based on my experience)
Before doing anything ask the company how much you are going to get and if they have stopped anything then query it.

[Mr Scruff]

Thank you for all the advice so far, I had a feeling much, if not all, would be taxable.

I have no idea whether it makes a difference but my contract doesn't state I can be paid in lieu of notice.

I was under the impression that redundancy payments were tax exempt (but didn't know for sure, hence asking!). Is this only relevant to the statutory figure then?

[Hyper10]

I have no idea whether it makes a difference but my contract doesn't state I can be paid in lieu of notice.

If the contract is silent, it's deemed to be damages, so the payment is not taxable, it's a case of you negotiating a figure which wraps everything up under 1 label (not holiday pay, bonus etc)

Basically redundancy payment is compensation for loss of job, the strong point is the silent contract on pay in lieu of notice, you are getting damages for loss of job. Your post is redundant but you are suffering a loss

Edited by Hyper10 on Friday 30th November 14:14

[Eric Mc]

Redundancy payments are not automatically tax or NI exempt.

[LC23]

If it is a genuine redundancy (which it sounds like) then the payment in lieu of notice should not be liable to tax assuming that all the payments which qualify as redundancy fall below £30,000. This is due to the fact that your contract is silent on this point. You would also need to check whether there is any reference to making a PILON in staff handbooks or specific redundancy procedures. If nothing exists then the PILON is not arising as a result of your employment contract or as a result of an employment right, it is arising because your employer is electing to pay it as a result of you losing your job.

Note that there is no £30,000 limit for NIC. ALL payments which qualify as redundancy are exempt from NIC.

Any payments arising as a result of your contract are payments for employment duties and therefore liable to PAYE/NIC.

This is very high level advice so I would suggest you seek specific advice on your circumstances as I do not have sight of the relevant documents.

And to the poster who suggested wrapping it all up as compensation for loss of office, this does not work. If they review it, HMRC will ask for a breakdown of how the amount is made up, including internal communcation on it. And yes I have seen this in practice and yes the company were made to pay up the additional tax and NIC due.

[Mr Scruff]

LC23 said:

This is very high level advice so I would suggest you seek specific advice on your circumstances as I do not have sight of the relevant documents.

Thank you, I think all the posts have highlighted how complicated this potentially is.

Agree that I need to get some specific advice - however (and I know it's a strange question) - who does one ask about such things? A financial advisor? As I previously mentioned I'm currently the sole wage earner in the family and therefore every penny is important to us.

[cuprabob]

I thought you had to be with a company 2 years before redundancy was legally due there the12 week payment will be subject to tax and NI as it won't be seen as a rendundancy payment in the eyes of HMRC.

Possibly worth talking to someone at your local Citizens Advice office.

[Jobbo]

cuprabob said:

I thought you had to be with a company 2 years before redundancy was legally due there the12 week payment will be subject to tax and NI as it won't be seen as a rendundancy payment in the eyes of HMRC.

The payment is not due at all on that basis, so is clearly ex gratia and therefore not subject to tax and NI (subject to the £30k threshold mentioned earlier in the thread).

[Mr Scruff]

Seems local CAB are closed post 4pm so will speak to them on Monday (thanks for the nudge in the right direction though, can't believe I didn't think of them).

I actually got a clear and rapid reply from my HR department - 'severance pay' will be free from deductions, 'pay in lieu of notice', 'bonus' and 'benefits in lieu of notice' are all PAYE deducted. Disappointing as the first item consitutes only 12% of the payment but I guess it's understandable. Still would like to get some independent advice (hence the CAB) just to be sure though.

[Hyper10]

And to the poster who suggested wrapping it all up as compensation for loss of office, this does not work. If they review it, HMRC will ask for a breakdown of how the amount is made up, including internal communcation on it. And yes I have seen this in practice and yes the company were made to pay up the additional tax and NIC due.
[/quote]

I would disagree as the context I used it in was that of a compromise agreement, HMRC do not challenge them, especially if drafted and reviewed by a solicitor, what can they challenge, the payment is "Damages"
In any case the company is left to pay the tax, not the other contributor and again based on him negotiating his compromise agreement, his solicitor would include the tax point.
We'll perhaps agree to differ on this matter (this my experience not and legal advice)

[cuprabob]

Another minor point is that you will have paid tax at a rate with the expectation of working the full tax year. So basically you will have overpaid tax so once you get your P45 calculate how much you should have paid vs actual. You will probably find you will be dueva small rebate.

Note though if you receive any benefits such as JSA in this tax year they will be counted as taxable income.