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Tony Tax
Tony Tax, Tax Consultant
Category: UK Tax
Satisfied Customers: 14057
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Hi Tony I will be receiving a redundancy payment on 108,000 My

Customer Question

Hi Tony

I will be receiving a redundancy payment on 108,000

My salary is 63,200

I am being made redundant as at 31st october

Will receive a bonus of 14% ( pro rated for 10/12ths)

I have a new job starting Nov earning 75,000
Submitted: 10 months ago.
Category: UK Tax
Expert:  Tony Tax replied 10 months ago.

Hi.

Can you tell me what you need to know please, the tax you will pay or ways to reduce it? Will your bonus be 14% of £63,200?

Customer: replied 10 months ago.


The former is my priority, I dont believe (unless you can tell me otherwise) that there is much I can do about the latter - but would be helpful nevertheless


 


Kind Regards

Expert:  Tony Tax replied 10 months ago.
Thanks.

Leave this with me while I do some calculations.
Customer: replied 10 months ago.


Sorry - yes the bonus is of the 63200

Expert:  Tony Tax replied 10 months ago.
Hi again.

The PAYE system works on a cumulative basis which means that the 20% and 40% bands get bigger with each passing month so after month 7 (October) you will be using 7/12ths of the 20% and 40% tax bands with any pay that is not absorbed by them being taxed at 45%.

Much depends on how the redundancy pay is handled. If it is paid with your last month's salary, then the tax that should be shown on your October payslip will be about £47,000. This is based on earnings of £122,300 (£36,900 salary + £7,400 bonus + £78,000 redundancy).

If the redundancy pay is paid to you post P45, ie after you leave your job, it will be taxed as a standalone payment using an 0T M1 tax code. The tax deduction will be about £33,400. You will be taxed on the basis of being given 1/12th of the 20% and 40% tax bands to use against the £78,000 with the excess being taxed at 45%. You will probably pay too much tax that way affecting your cash flow so try to have it paid with your salary.

The tax on your salary from your new job will be distorted if the redundancy is taxed as part of your final months pay but will gradually right itself each month as the end of the tax year approaches.

If your total income for 2013/14 is £153,550 (£36,900 salary + £7,400 bonus + £78,000 redundancy + £31,250 salary), then your final tax liability will be £55,196. You will be able to reclaim any excess tax paid at the end of the tax year.

The only real way you can reduce your tax exposure is to pay pension contributions either into your company scheme or your personal pension scheme.

I hope this helps but let me know if you have any further questions.
Tony Tax, Tax Consultant
Category: UK Tax
Satisfied Customers: 14057
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
Tony Tax and other UK Tax Specialists are ready to help you
Customer: replied 10 months ago.

I am expecting the redundancy payment in my final salary payment.


 


Do you think I will pay too much , about right or not enough tax at that point?


 


I am trying to establish whether I need to set aside some of my payment for a future tax liability, or indeed whether I should be claiming tax back?

Expert:  Tony Tax replied 10 months ago.
Based on what you have told me, you should not need to set any money aside as you will probably pay too much tax on the taxable element of your redundancy especially since it will be paid with your final month's salary. Assuming that happens and your hand your P45 which should include pay to the end of October and the £78,000 taxable redundancy to your new employer, your tax will gradually come back into line between the end of October and the end of the tax year on 5 April.

At the end of the tax year, you can ask the tax office to check your tax for you and, if you have been on a 0T tax code for the whole tax year, you should have paid the correct amount of tax.

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