Tax On Redundancy Payment

[barney15c]

On a sum of £70000 - how much tax would have to be paid?
First £30000 is tax free, but do you pay 20% on £30001 - £50271 and then 40% on £50272 - £70000.
Or do you pay 40% on £30001 - £70000?

[bobbinwales]

It depends on all your other income in the tax year and when its payed. Also if they think that that £40000 might just be a salary increase they might assume its going to continue for rest of tax year so may assume alot is due at 40%.

[barney15c]

I have no other income until i draw my work pension in 18 months time. So it that 40% on anything over £30001?

[bobbinwales]

But if your been made redundant there must of been some taxable income in the months before from that job. Your payroll dept may know- they may code it as a one off like a bonus

[barney15c]

i have no idea, i am taking Voluntary redundancy in August and expect an offer of around £70k , so i just want a rough idea what my final payment will be after tax. I have no other taxable source of income or investments.

[bednobs]

but we dont know how much taxable income you would have earned between april and august, so no one can tell you!

[Ellipsis]

Since you know your situation and may be uncomfortable sharing it, this may help:

https://www.moneyhelper.org.uk/en/work/losing-your-job/do-you-have-to-pay-tax-on-your-redundancy-payout

[ToraToraTora]

ok assuming no other income you will get 30k tax free then the 40k will be treated as income for that tax year, you get £12750 allowance so your taxable income will be £28250, on that you will pay 20% tax + whatever national insurance works out as.

[ToraToraTora]

for £28250 read £27250

[barney15c]

Thank you TTT , thats a good explaination, gives me a rough idea of what to expect. Appreciate it.

[Hymie]

‘I’m expecting an offer of around £70,000’ – don’t count your chickens before they hatch.

Many benefits (pay outs) from redundancy are on beneficial terms vs the legal minimum that your employer need pay, but I’d be surprised if you get anywhere near £70k.

Redundancy pay is normally limited to a maximum of 20 years service, with 1 weeks pay for every year of service between the ages of 22 and 41, and 1 ½ weeks pay for every year of service over the age of 41. Therefore the maximum number of weeks pay would be for someone who qualified for 20 years service after the age of 41, at 30 weeks pay.

Now for the real downer; for the purposes of calculating your pay out, your weekly pay may be capped at £544 – resulting in a maximum redundancy pay out of £16,320.

But many firms do offer terms better than the legal minimum (for instance, taking into consideration your actual weekly pay and not the capped figure) – but they are under no obligation to do so unless your terms of employment state otherwise.

See here for more info:-

https://www.gov.uk/redundancy-your-rights/redundancy-pay

[bobbinwales]

Hymie... I'm sure Barney knows the terms that are on offer, some firms use the statutory, some use terms far more generouser than those your saying

[Hymie]

Nearing retirement, I’ve seen my fair share of redundancies; none offered more than the 20 years service, although the best offered double the qualifying weeks at actual pay rates.
Even so, under these generous terms, barney15c would need 20 years service over the age of 41 and a salary of around £60k to get a £70k redundancy pay out.

[Peter Pedant]

One of my colleagues got £250 000 and we all queued up at the trough - that was when the evil MD said ( to us all) - of course you can't go - the old men can do anything

( well why do you kick us around so much?)

[New Judge]

You should also bear in mind that you can "wash" some of your redundancy payment through your pension scheme (assuming you have one). You can contribute up to £40k in a tax year and this is then protected from tax and NI.

[bobbinwales]

Hymie I know several people whove got similar terms to those barney may be expecting , like 3 or 4 weeks for every year up to max of 30 years, plus sometimes 3 months pay in leiue of notice. Off course some get lot's less but am sure Barney knows what the deal is

[bobbinwales]

//Even so, under these generous terms, barney15c would need 20 years service over the age of 41 and a salary of around £60k to get a £70k redundancy pay out//
Theres a lot of nonsense in there Hymie , whats age 41 got to do with it if its a companies own scheme, they have agreed schemes which dont need to refer to age just service and final salary... unless you know who barney works for

[bednobs]

you could fairly easily get to 70k in the nhs. they give 1 months pay per year, up to 24 months

[Hymie]

Whilst barney15c may well be on enhanced redundancy terms - a small number of staff at my current employer are being made redundant – the terms being the government minimum with the exception that the redundancy payout will be based on actual salary and not capped.

If barney15c were being made redundant on these terms, he’d need a salary of over £120k to get a £70k redundancy payout.

I’m somewhat surprised that his employer has such a good crystal ball, and know that they will not require his services in 5 months time – based on my experience of senior management, they don’t have much idea of what will happen tomorrow.

If I were barney15c’s employer I’d save the redundancy money and wait for him to retire.

[archibaldy]

// If I were barney15c’s employer I’d save the redundancy money and wait for him to retire. //

If the redundancy money is less than the 18 months salary plus 14% NI, pension payments, other benefits, and the general cost of employing someone they'd be paying if he stayed, then it is in their interest to pay redundancy. Which is why the offer is likely to be quite a high one, seeing as it's voluntary and presumably the OP doesn't have to take it if it's not appealing enough.

[Hymie]

archibaldy - your financial analysis assumes that barney15c will make no useful contribution to the company during his 18 months employment – of course he cannot be forced to retire in 18 months, but has indicated that he plans to do so.