should you be taxed on redundancy pay?
Discussion
My friend's been made redundant, and re-employed by a new employer with no break in employment, doing the same job. So on the Friday she finished, and started with the new employer on the Monday. She received redundancy pay, and pay in lieu of notice, but appears to have paid income tax on the redundancy element of her pay, is that normal?
When I was made redundant a couple years ago I seem to remember something like the first £30000 was tax free and anything over that was taxed at your normal tax rate.
Well, as redundancy pay is compensation for your job loss, it qualifies for special tax treatment, so up to £30,000 is tax free. But many people don't realise that other elements of their package – holiday pay and pay in lieu of notice – will be taxed in the same way as any other pay.
Well, as redundancy pay is compensation for your job loss, it qualifies for special tax treatment, so up to £30,000 is tax free. But many people don't realise that other elements of their package – holiday pay and pay in lieu of notice – will be taxed in the same way as any other pay.
Edited by scorcher on Tuesday 19th November 22:25
The 30k figure explained in a little more detail
https://www.taxinsider.co.uk/542-The_30000_Redunda...
https://www.taxinsider.co.uk/542-The_30000_Redunda...
No - definitely not!
I got a company relocation in 1991 from Surrey to Gloucestershire, then my employer went t*ts-up in 1992. So I had to pay to relocate back after spending 2 months signing on!
That didn't seem exactly fair to me, but if the money-grabbing g*ts want to screw everyone that pays for their existence then that seems to be their prerogative - God forbid they ever have to live in the real world, because they would never cope! W*nkers.
I got a company relocation in 1991 from Surrey to Gloucestershire, then my employer went t*ts-up in 1992. So I had to pay to relocate back after spending 2 months signing on!
That didn't seem exactly fair to me, but if the money-grabbing g*ts want to screw everyone that pays for their existence then that seems to be their prerogative - God forbid they ever have to live in the real world, because they would never cope! W*nkers.
Macneil said:
My friend's been made redundant, and re-employed by a new employer with no break in employment, doing the same job. So on the Friday she finished, and started with the new employer on the Monday. She received redundancy pay, and pay in lieu of notice, but appears to have paid income tax on the redundancy element of her pay, is that normal?
Redundancy pay is not taxable but pay in lieu of notice is. Are you sure she hasn't just paid tax on that and not the redundancy part?The 30k limit is for tax free. Anything above is taxed.
Re reducing the tax.......
Depends on the company pension scheme, if any.
In my case I was eligible for accessing a company pension taken early. The redundancy payment was very good and the financial adviser was spot on in advice re putting the redundancy into the pension scheme and making a withdrawal from it up to the limit allowed. This reduced the tax bill significantly.This was then reinvested. My package after advice was early pension, finding another job ( not that difficult at the time provided you were open minded in your choice) leave the investment to grow untouched if possible.
My advice is to get a good financial adviser who will help with your options. It is a complex situation depending on individual circumstances so what suits one is not so for someone else. Also decent employment law advice session with a solicitor.
Try to get the right attitude/mentality too. It could be a chance to diversify/ change career path/ move to something different.
Re reducing the tax.......
Depends on the company pension scheme, if any.
In my case I was eligible for accessing a company pension taken early. The redundancy payment was very good and the financial adviser was spot on in advice re putting the redundancy into the pension scheme and making a withdrawal from it up to the limit allowed. This reduced the tax bill significantly.This was then reinvested. My package after advice was early pension, finding another job ( not that difficult at the time provided you were open minded in your choice) leave the investment to grow untouched if possible.
My advice is to get a good financial adviser who will help with your options. It is a complex situation depending on individual circumstances so what suits one is not so for someone else. Also decent employment law advice session with a solicitor.
Try to get the right attitude/mentality too. It could be a chance to diversify/ change career path/ move to something different.
Another issue which to some extent is more or less significant is the point in the tax year at which all this happens. For example if someone is made redundant early on in the tax year, the way the tax tables work, or seem to work, is that it's assumed the pay is a really heavy monthly pay which will now continue. There is often a tax rebate which can be claimed later. Yes it's dumb but there it is.
The situation with the OP will depend on the on going pay situation at the year end whether too much or too little tax been paid, usually too much.
The situation with the OP will depend on the on going pay situation at the year end whether too much or too little tax been paid, usually too much.
I'm assuming that when you say "doing the same job" - you mean same job title in a different company
i.e. Thomas cook crew now working for Virgin
It might just be the wording but "re-employed" and "doing the same job" might mean something different !
"My friend's been made redundant, and re-employed by a new employer with no break in employment, doing the same job."
Re: a lifetime limit of 30K - the only circumstance i can see this applying is if you are made redundant from company A , then rejoin company A at later date ...would the payments be aggregated ? - Though i might be misreading this and i doubt it applies in this situation
"
(1)For the purpose of the £30,000 threshold in section 403(4) and (5), the payments and other benefits provided in respect of an employee or former employee which are to be aggregated are those provided—
(a)in respect of the same employment,
(b)in respect of different employments with the same employer, and
(c)in respect of employments with employers who are associated."
i.e. Thomas cook crew now working for Virgin
It might just be the wording but "re-employed" and "doing the same job" might mean something different !
"My friend's been made redundant, and re-employed by a new employer with no break in employment, doing the same job."
Re: a lifetime limit of 30K - the only circumstance i can see this applying is if you are made redundant from company A , then rejoin company A at later date ...would the payments be aggregated ? - Though i might be misreading this and i doubt it applies in this situation
"
(1)For the purpose of the £30,000 threshold in section 403(4) and (5), the payments and other benefits provided in respect of an employee or former employee which are to be aggregated are those provided—
(a)in respect of the same employment,
(b)in respect of different employments with the same employer, and
(c)in respect of employments with employers who are associated."
That's how I understand it ^^^.
One thing to be wary of in terms of allowances and lifetime allowances generally is investing a large redundancy payment into a pension. It could be easy for some to exceed the annual 40,000 allowance or I suppose for high earners to fall foul of the lifetime allowance.
Since the rules changed and HMRC are increasing vigilance on employer's treatment of PENP (what used to be called PILON) it's ever more important for employers and the employee to get proper advice. Employers too often just lumped everything together and just paid the first 30k tax free, which would get them in trouble now.
One thing to be wary of in terms of allowances and lifetime allowances generally is investing a large redundancy payment into a pension. It could be easy for some to exceed the annual 40,000 allowance or I suppose for high earners to fall foul of the lifetime allowance.
Since the rules changed and HMRC are increasing vigilance on employer's treatment of PENP (what used to be called PILON) it's ever more important for employers and the employee to get proper advice. Employers too often just lumped everything together and just paid the first 30k tax free, which would get them in trouble now.
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