Income tax question
Discussion
Hi all, quick question on an income tax scenario.
Say you have worked from April (start of tax year) up to middle of March in the same tax year and earned enough to be in higher rate well within that tax year. Then you are due a large payment as part of a redundancy agreement. If the redundancy and PILON (pay in lieu of notice) was physically paid to you after April the 6th i.e. the next tax year, does it fall into that next years allowances and hence qualify for lower tax deductions ? Albeit I recognise that if you then bean earning again, you would likely be straight into higher rate.
Any views / knowledge appreciated.
Say you have worked from April (start of tax year) up to middle of March in the same tax year and earned enough to be in higher rate well within that tax year. Then you are due a large payment as part of a redundancy agreement. If the redundancy and PILON (pay in lieu of notice) was physically paid to you after April the 6th i.e. the next tax year, does it fall into that next years allowances and hence qualify for lower tax deductions ? Albeit I recognise that if you then bean earning again, you would likely be straight into higher rate.
Any views / knowledge appreciated.
Yes! But the first £30k of redundancy money is tax free regardless.
So ideally, the payoff money should be received in the next tax year otherwise it simply adds on to your earnings so far. Then as you say, if you are employed in the payoff tax year you will be taxed as the average inclusive of the payoff money.
If you have a private pension plan you can put a lump sum in that tax free and I believe you can back date 3 years. You claim the tax back if you can’t get your employer to put the lump sum direct into a personal pension plan.
So ideally, the payoff money should be received in the next tax year otherwise it simply adds on to your earnings so far. Then as you say, if you are employed in the payoff tax year you will be taxed as the average inclusive of the payoff money.
If you have a private pension plan you can put a lump sum in that tax free and I believe you can back date 3 years. You claim the tax back if you can’t get your employer to put the lump sum direct into a personal pension plan.
Inspectorclueso said:
Thanks for reply. That’s what I expected, but need to get some advice on the pension. I have two work related schemes so need to look at the options. Thx.
Your first company pension you can’t add anything additional to. Your second stake holder pension is the one you can add the lump sum to. £40k per year tax free. If your company can add the lump sum to the stake holder pension it saves the grief of claiming the tax back via hmrc RobXjcoupe said:
Yes! But the first £30k of redundancy money is tax free regardless.
So ideally, the payoff money should be received in the next tax year otherwise it simply adds on to your earnings so far. Then as you say, if you are employed in the payoff tax year you will be taxed as the average inclusive of the payoff money.
If you have a private pension plan you can put a lump sum in that tax free and I believe you can back date 3 years. You claim the tax back if you can’t get your employer to put the lump sum direct into a personal pension plan.
Redundancy up to £30k is tax free, PILON is taxable.So ideally, the payoff money should be received in the next tax year otherwise it simply adds on to your earnings so far. Then as you say, if you are employed in the payoff tax year you will be taxed as the average inclusive of the payoff money.
If you have a private pension plan you can put a lump sum in that tax free and I believe you can back date 3 years. You claim the tax back if you can’t get your employer to put the lump sum direct into a personal pension plan.
Sy1441 said:
RobXjcoupe said:
Yes! But the first £30k of redundancy money is tax free regardless.
So ideally, the payoff money should be received in the next tax year otherwise it simply adds on to your earnings so far. Then as you say, if you are employed in the payoff tax year you will be taxed as the average inclusive of the payoff money.
If you have a private pension plan you can put a lump sum in that tax free and I believe you can back date 3 years. You claim the tax back if you can’t get your employer to put the lump sum direct into a personal pension plan.
Redundancy up to £30k is tax free, PILON is taxable.So ideally, the payoff money should be received in the next tax year otherwise it simply adds on to your earnings so far. Then as you say, if you are employed in the payoff tax year you will be taxed as the average inclusive of the payoff money.
If you have a private pension plan you can put a lump sum in that tax free and I believe you can back date 3 years. You claim the tax back if you can’t get your employer to put the lump sum direct into a personal pension plan.
For example gross pay could be £1k a week and pension via salary sacrifice totals £300 a week. New taxable pay is £700 a week. Your earnings per year are only £36,400 compared to £52,000 but you have still paid Into a work pension. You can do that up to £40k per year.
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