Redundancy And Tax

[bednobs]

Hi i am due to be made redundant in January. i know that i don't pay tax on the first 30k of my redundancy. However, come the end of the financial year, will that 30k be taken into any sort of account when totting up my earnings over the year? I am just under the higher rate tax bracket, and wondered of i'd have a big tax bill if i was taken over the threshold, or if the 30k is completely forgotten about

[yogi-bear]

Hi bednobs

This link may help you.....

https://www.moneyadviceservice.org.uk/en/articles/do-you-have-to-pay-tax-on-your-redundancy-payout

[yogi-bear]

Sorry couldn't be further help....there is a tel number for a Redundancy Payments Helpline on this link....

https://www.gov.uk/redundancy-payments-helpline

Hopefully someone here may know the answer but just in case you're stuck.

[fiction-factory]

The £30000 is paid tax free and is ignored for tax purposes.( It's also free of NI but that is not significant as the payment exceeds the NI upper threshold.) The rest of the redundancy pay will be added to your income and that may or not take you into the higher tax band. If your pension scheme allows you to cpay in a lump sum from final salary and put it into pension that can be worth doing

[New Judge]

"It's also free of NI but that is not significant as the payment exceeds the NI upper threshold."

It doesn't matter to the OP but just for clarity there is no upper threshold for NI contributions. If you make Class 1 contributions you pay 2% on all earnings above the Upper Earnings Limit which is currently £45,000. Below that level you pay 12% on earnings above £8,160.

It is well worth enquiring if you can "wash" the remainder of your redundancy lump sum through your pension scheme. For most people this sees the tax liability on that sum reduced to nil.

[fiction-factory]

Yes, thanks for explaining it in more detail, NJ. That's why I said it's a saving but it's not significant as it's almost certainly only going to be a 2% marginal rate. I wasn't sure whether to even mention it but thought if didn't someone would point out that that I'd failed to mention a potential further small saving from taking the tax free lump sum.
For further clarification of NJ's point though- the 'ceiling' is actually called the "upper earnings threshold" even though a lower 2% rate does operate above this; but it is not strictly £45000 (or £45032) since it's calculated based on the frequency of payments- if it's weekly pay for example the figure is £866pw; if it's monthly it's £3,753 per month.
If there is a chance of PILON (pay in lieu of notice) then that is worth taking too because of tax treatment

[New Judge]

Yes, unlike Income Tax, NI does not operate cumulatively. If you earn £8,000 in a week but nothing for the rest of the year you will pay no income tax because £8k is below the annual Personal Allowance of £11,500. (Well you might pay tax depending at what point in the year you earn your £8k, but you'd get it back). However on that same £8,000 you will pay around £228 NI. Even though this is below the £8,160 annual allowance before you pay NI it is above the weekly NI free allowance of just £157. So you won't get your £228 back.

[EDDIE51]

I seem to remember that you have to get paid your redundancy money the day after you officially leave, so that it can not be classed as earnings.
But that may be wrong as it was years ago.

[bednobs]

i dont get it till the end of the month after i leave

[ubasses]

That is fine Bednobs, that is when I got mine. I kept the £30,000 and paid the rest into my pension so as not to pay any tax. That increased both my pension tax free lump sum and my monthly income.