Redundancy

[sg]

Hi, amount offered for redundancy is around £41,000 . £30,000 is tax free and the rest is taxed and the payout would be paid as a lump sum. can you tell me how much the final amount is likely to be?

[bobbinwales]

If you are basic rate taxpayer you pay tax at 20% so would pay tax on 11000 so thats 2200. So you get 41000-2200= 38800 (need to check on calculator)

[bobbinwales]

But if the extra amount takes yo into the next tax bracket for the tax year you might pay some at 40%.
Would need to check whether you pay any NI on redundancy- dont think you do but need to check

[ubasses]

No NI on redundancy. Obviously do not know your age or financial situation, but you can pay the £11000 into your pension fund tax free. This would increase both your pension tax free lump sum and monthly income.

[sg]

Thank you , I really appreciate your answers.

[New Judge]

Yes, "wash" the £11k through your pension fund and avoid tax.

[Hopkirk]

Unless you need it now. Once in the pension fund it is locked away.

[New Judge]

Until you are 55.

[bobbinwales]

If your a 40% tax payer then yes definately consider putting into your pension pot, especially if your likely to draw your pension and tax free lump sum soon. But its not quite as advatagous tho if your a basic rate taxpayer and already have a decent pot. Although your avoiding the 20% tax on the way in you will pay 20% tax (on up to 80% of it if you tax the maximum lump sum ) on the way out as you draw it,

[bobbinwales]

^ 75% not 80% as you can take 25% of pension pot tax free as lump sum

[Ellipsis]

£41,000 is a lot for redundancy, a lot more than the statutory payment (which is unlikely to be above £16,000). £41,000 suggests you're an older, higher rate taxpayer so it's definitely worth getting professional advice on the pension route and other options.

[Maydup]

To clarify, you will pay tax and NI on the £11k and nothing on the £30k payout which is tax and NI free, and will not take you into a higher tax band.

The £11k is likely to be made up of outstanding salary, notice, bonus, holiday pay, etc so usual calculations apply. Calculate the take home, based on whether you are normally a lower or higher rate tax payer.

[New Judge]

//To clarify, you will pay tax and NI on the £11k//

To clarify a bit further, no you won't.

Before last April no NI contributions were payable on redundancy payments. Since then, redundancy payments which attract income tax (in general, those in excess of £30k) attract employers' NI contributions at 13.8%. There is no NI payment due from the employee so no NI will be payable on your £11k.

This only applies to redundancy or termination payments. Other payments such as Pay in lieu of Notice attract income tax and NI in the normal way.

[Maydup]

New Judge. OP says the £11k is taxed and the £30k is tax free, so we have to assume the £11k is current salary, notice weeks etc and attracts NI too.

[bobbinwales]

No we dont need to assume that. Redundancy payment is a seperarte one off payment as compensation for loss of future earnings. It is paid seperate from, or together but in addition to any notice pay and outstanding holiday pay

[bobbinwales]

The first £30k of any redundancy pay is always tax free and the rests taxed at the apropriate rate

[sg]

I am extremely grateful for all your input. £11k is not my salary, it's more in the £30k bracket and I have been advised that my severance will be tax free for £30k and then another £11k appx which will be taxed. That's not taking into consideration upcoming paid time out and other matters. What you have all done is helped me with a clearer picture of where I stand. Thanks to you all for your wise support.

[alavahalf]

Where I work about 75% of the staff were recently made redundant. Many of them had £50k+ to take home.
The redundany payment was calculated on the number of years service, times 3.5 weeks pay for every complete year, plus a years holiday pay if you walked away there and then and didn't insist on working your notice !
They had a 100% take up on that offer !

[TonyV]

If you can get through them try HMRC

[New Judge]

//If you can get through them try HMRC//

What for, tony?

The £11k will be taxed at 20% (seems sg pays tax at the standard rate) so will cost him £2,200. No NI deductions will be made. The other payments mentioned will be subject to tax and NI as usual.

[ToraToraTora]

as an aside if you get made redundant just after April 6th and then do not work for the rest of the tax year then you'll be able to claim the £2200 tax back as the £11k will be under the tax free threshold for that year.