Possibly sleepwalking into a redundancy tax problem

[Ace-T]

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.

[Ace-T]

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 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..

Edited by Ace-T on Monday 6th July 19:44

[Ace-T]

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 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]

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.

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.

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]

Thank you for your replies, I am looking into each and every one of the bits of info you have given. I really appreciate your time on this.