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Old 25 August 2008, 19:59   #1
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Question on Redundancy

I have a friend that has been offered volintary redundancy. He should be getting a nice wedge, however apparently the payment is subject to Income Tax at the normal rates. In addition to this and with his wages this year it will push his earnings in excess of the 40% tax bracket.

Is this right? When did the government pass this ruling?

It seems very unfare if this is the case.
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Old 25 August 2008, 23:24   #2
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Yes it is correct!!!

Don't know when it was introduced but i can guess by whom.......

A bloke I know had the same problem and he got around it by having the excess paid into a pension scheme.

There may also be a possibility of having it in instalments.

I bet there are various ways around it if you try hard enough - I suspect someone will give you the correct answer but I will ask my accountant of you are still stuck.
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Old 26 August 2008, 04:31   #3
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Andy,

If I remember correctly it depends on the terms of your employment contract. If there is a "Pay in Lieu of Notice" clause (sometimes called a PILON clause) in the contract then any (?) redundancy payment would be subject to Tax. If there is not such a clause then at least part of the redundancy payment would be tax and NI free. In any case I don't think the statutory part of the redundancy pay is taxable. Although its not much it might make the difference between the rest being 40% or not.

As CP says though a definitive answer needs a good tax/employment lawyer or accountant. Even if there are ways around it then the employer would need to be cooperative which they may not be.

hope that helps.
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Old 26 August 2008, 08:02   #4
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Andy

As has been said before the reallity of it is how 'friendly' the employer is.

They can work redundancy any way they wish with contract wording and redundancy terms offered.

My suggestion would be to get your freind to explain the situation to them and ask them to help.

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Old 26 August 2008, 13:37   #5
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He was aware on what he would get for the redundancy package as that part of it hasn't changed in years, he was just shocked at the Tax element of it and how quietly the government had introduced it.

I guess you know who introduced it because we're heading into recession
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Old 26 August 2008, 13:43   #6
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Upto 30k is usually tax free after that its payed at your highest level of tax.
This seems a good site
http://www.redundancyhelp.co.uk/MonTax.htm
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Old 28 August 2008, 13:11   #7
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Tinker is right about the 30k being tax free.
Above that, the income is subject to income tax.
But, I don't think it is all taxed at your highest rate, rather it is treated as normal income and goes towards the normal income brackets.
Hence, if you are a normal rate payer, the amount up to the higher rate threshold will be taxed at normal rate, then any amount over the higher rate threshold will be taxed at the higher rate.

Make sense?

This is all from memory when my old man was made redundant 10 years or so ago, so it is not a recent change!
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