Any PAYE experts here ?

Emp_Fab

I've just had my final payslip and in addition to the redundancy payment, I've been paid three months pay in lieu of notice.  This is, of course, taxable.  However, the amount of tax that has been deducted on this payment is over twice the amount deducted in total from my Jan, Feb & Mar payslips.  The gross taxable amount for those three months is, give or take a couple of hundred quid, the same gross taxable amount for my three months pay in lieu of notice payment I've just received.  Therefore, you would expect the tax to be similar - but it's miles off.

I'll take it up with payroll on Tuesday but in the meantime are there any tax types here who can shed any light on it please ?

steveledzep

First off, I'm not a tax expert, just saying what I think.  Your payments for Jan/Feb/Mar were spread over those 3 months and benefited from 25% of your annual tax free allowance (tax code).  This 3 months in lieu payment has been paid barely 1 month into the new tax year and will only have your tax free allowance for 2 or 3 weeks or so.  Furthermore, the IR will extrapolate this payment to calculate annual earnings projection and this will take you into the higher tax band (assuming you weren't paying higher rate tax previously).  That's my best guess based upon my knowledge of our tax system.  I'm sure someone more proficient in these matters will be along to correct me soon.

siremoon

Also, and this may or may not be relevant in this case, only the first £30,000 of a redundancy payment is tax free.  Anything over that is taxed at the marginal rate.

RedRabbit

steveledzep said:

First off, I'm not a tax expert, just saying what I think.  Your payments for Jan/Feb/Mar were spread over those 3 months and benefited from 25% of your annual tax free allowance (tax code).  This 3 months in lieu payment has been paid barely 1 month into the new tax year and will only have your tax free allowance for 2 or 3 weeks or so.  Furthermore, the IR will extrapolate this payment to calculate annual earnings projection and this will take you into the higher tax band (assuming you weren't paying higher rate tax previously).  That's my best guess based upon my knowledge of our tax system.  I'm sure someone more proficient in these matters will be along to correct me soon.

Pretty much this. You've been taxed on 3 month's salary with just one month's worth of allowances and band limits. PAYE is calculated on a year to date basis so April is the worse month for this to happen in as well especially if you are not usually a higher rate tax payer.

If you find another job this tax year you'll reclaim the overpaid tax throughout the year through PAYE. Otherwise you'll need to claim it back from HMRC after the end of the tax year. 

rlw

Im surprised that the payment in lieu was taxable as that wasn’t always so.
As said above, depending upon the sum involved, you could have been taxed at 45% with no task allowance at all.

EricTheWeary

When I was made redundant it took me over the threshold so I was claiming £90 per week JSA and being taxed at the higher rate. 
I had to work my notice, bloody horrible time. My wife said just go off sick and in retrospect I should have. Much better to get payment in lieu of notice. 

RedRabbit

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

Lots of info on how the various parts of your redundancy payout will be taxed.

prowla

rlw said:

Im surprised that the payment in lieu was taxable as that wasn’t always so.
As said above, depending upon the sum involved, you could have been taxed at 45% with no task allowance at all.

PILON is taxable, but the redundancy payment isn't (subject to limits).

These days many companies will only do the statutory minimum redundancy, which is only equivalent to around a couple of months pay, so if you got more than that, you've done well.

I took redundancy from a company who wanted to change my job; since they gave me the option I said no thanks and TBH my 3 months notice was more money than the redundancy.

One thing to check is the pension contributions and other benefits are covered through to the correct date; I had to do some reading up on the government site.

Looks like you'll be needing to do a Tax Return at the end of the year.

Emp_Fab

prowla said:

rlw said:

Im surprised that the payment in lieu was taxable as that wasn’t always so.
As said above, depending upon the sum involved, you could have been taxed at 45% with no task allowance at all.

PILON is taxable, but the redundancy payment isn't (subject to limits).

These days many companies will only do the statutory minimum redundancy, which is only equivalent to around a couple of months pay, so if you got more than that, you've done well.

I took redundancy from a company who wanted to change my job; since they gave me the option I said no thanks and TBH my 3 months notice was more money than the redundancy.

One thing to check is the pension contributions and other benefits are covered through to the correct date; I had to do some reading up on the government site.

Looks like you'll be needing to do a Tax Return at the end of the year.

Mine was the legal minimum.  What do you mean ‘the pension contributions and other benefits are covered through to the correct date’?.  Could you expand on that please ?

boogieman

siremoon said:

Also, and this may or may not be relevant in this case, only the first £30,000 of a redundancy payment is tax free.  Anything over that is taxed at the marginal rate.

I got over £30k as a leaving package but my company let me split it over two tax years. So I got £30k in the March and the balance paid after the new tax year. No tax, thank you very much. Depends how obliging your employer is and it all needs to be set up in advance of course. 

tony99

steveledzep said:

First off, I'm not a tax expert, just saying what I think.  Your payments for Jan/Feb/Mar were spread over those 3 months and benefited from 25% of your annual tax free allowance (tax code).  This 3 months in lieu payment has been paid barely 1 month into the new tax year and will only have your tax free allowance for 2 or 3 weeks or so.  Furthermore, the IR will extrapolate this payment to calculate annual earnings projection and this will take you into the higher tax band (assuming you weren't paying higher rate tax previously).  That's my best guess based upon my knowledge of our tax system.  I'm sure someone more proficient in these matters will be along to correct me soon.

Spot on. As someone else mentioned, a new employer can repay that back to you (when it turns out you're not actually earning that much per month) or HMRC can pay it back automatically at year end (next year). Although you could technically claim it back sooner depending on if you have any income or not.

prowla

Emp_Fab said:

prowla said:

rlw said:

Im surprised that the payment in lieu was taxable as that wasn’t always so.
As said above, depending upon the sum involved, you could have been taxed at 45% with no task allowance at all.

PILON is taxable, but the redundancy payment isn't (subject to limits).

These days many companies will only do the statutory minimum redundancy, which is only equivalent to around a couple of months pay, so if you got more than that, you've done well.

I took redundancy from a company who wanted to change my job; since they gave me the option I said no thanks and TBH my 3 months notice was more money than the redundancy.

One thing to check is the pension contributions and other benefits are covered through to the correct date; I had to do some reading up on the government site.

Looks like you'll be needing to do a Tax Return at the end of the year.

Mine was the legal minimum.  What do you mean ‘the pension contributions and other benefits are covered through to the correct date’?.  Could you expand on that please ?

(This is from when I did it, a few years back, so double-check!)

The benefits in your contract have to cover to the end of the notice, even if PILON.

https://www.gov.uk/redundant-your-rights/notice-periods

TimmyO

boogieman said:

siremoon said:

Also, and this may or may not be relevant in this case, only the first £30,000 of a redundancy payment is tax free.  Anything over that is taxed at the marginal rate.

I got over £30k as a leaving package but my company let me split it over two tax years. So I got £30k in the March and the balance paid after the new tax year. No tax, thank you very much. Depends how obliging your employer is and it all needs to be set up in advance of course. 

Is that not technically avoidance? 

RaymondLin

TimmyO said:

boogieman said:

siremoon said:

Also, and this may or may not be relevant in this case, only the first £30,000 of a redundancy payment is tax free.  Anything over that is taxed at the marginal rate.

I got over £30k as a leaving package but my company let me split it over two tax years. So I got £30k in the March and the balance paid after the new tax year. No tax, thank you very much. Depends how obliging your employer is and it all needs to be set up in advance of course. 

Is that not technically avoidance? 

Avoidance is fine, evasion is not.

TimmyO

RaymondLin said:

TimmyO said:

boogieman said:

siremoon said:

Also, and this may or may not be relevant in this case, only the first £30,000 of a redundancy payment is tax free.  Anything over that is taxed at the marginal rate.

I got over £30k as a leaving package but my company let me split it over two tax years. So I got £30k in the March and the balance paid after the new tax year. No tax, thank you very much. Depends how obliging your employer is and it all needs to be set up in advance of course. 

Is that not technically avoidance? 

Avoidance is fine, evasion is not.

Then that's the one I meant :-) 

ToneControl

they changed the rules recently:

https://www.personneltoday.com/hr/changes-payment-in-lieu-of-notice-tax/

It all depends whether your contract specified the PILON

ToneControl

and if you suddenly get paid more, HMRC assume you got a pay rise and are now being paid 3 times as much

Try phoning them up, they may refund some now, otherwise you need to claw it back from future earnings or claim it back after April 2020

sw67

A few guys in my work took redundancy with payment in lue of notice. they asked accounts to say they had worked their notice and got the whole lot tax free. 

boogieman

TimmyO said:

boogieman said:

siremoon said:

Also, and this may or may not be relevant in this case, only the first £30,000 of a redundancy payment is tax free.  Anything over that is taxed at the marginal rate.

I got over £30k as a leaving package but my company let me split it over two tax years. So I got £30k in the March and the balance paid after the new tax year. No tax, thank you very much. Depends how obliging your employer is and it all needs to be set up in advance of course. 

Is that not technically avoidance? 

All perfectly legal. Why would anyone pay tax if they don’t have to? 

Musicwolf

ToneControl said:

they changed the rules recently:

https://www.personneltoday.com/hr/changes-payment-in-lieu-of-notice-tax/

It all depends whether your contract specified the PILON

Yes the rules changed fairly recently.  Also, I agree with the previous comments that HMRC likely extrapolated your last pay packet and taxed you accordingly.  It's reasonably easy to sort out but, if you do nothing, you should still get it back at the end of the tax year (or when you start work again).

prowla

TimmyO said:

RaymondLin said:

TimmyO said:

boogieman said:

siremoon said:

Also, and this may or may not be relevant in this case, only the first £30,000 of a redundancy payment is tax free.  Anything over that is taxed at the marginal rate.

I got over £30k as a leaving package but my company let me split it over two tax years. So I got £30k in the March and the balance paid after the new tax year. No tax, thank you very much. Depends how obliging your employer is and it all needs to be set up in advance of course. 

Is that not technically avoidance? 

Avoidance is fine, evasion is not.

Then that's the one I meant :-) 

It's said that the difference between the two is the width of a prison wall...

Avoidance is everybody's duty, whether it's putting money into an ISA, paying pension via salary sacrifice, shifting payments from one year to the other; evasion (like taking money abroad in a suitcase) may see you in the clink.

Incidentally, though not relevant to this thread, working cash-in-hand (eg. doing a gig, or buying ciggies in a car park), is evasion!