redundancy tax from apr 18

[JT77]

Hi folks, posted what seems an age ago about Michelin closing here, and being made redundant. I heard today that the government plans to change the tax relief on redundancy payments, I know the company now has to pick extra NI contributions, but the first 30k was tax free, I have heard that that will no longer be the case. Any Tax gurus on here able to help?
thanks

 

[rudebhoy]

Hi folks, posted what seems an age ago about Michelin closing here, and being made redundant. I heard today that the government plans to change the tax relief on redundancy payments, I know the company now has to pick extra NI contributions, but the first 30k was tax free, I have heard that that will no longer be the case. Any Tax gurus on here able to help?
thanks

My understanding was it was Payment in Lieu of Notice (PILON) which would no longer be exempt and the larger redundancy compensation element would still get the 30k exemption. Might have got that wrong though, best to ask your HR/Payroll department.

 

[JT77]

thanks RB, yeah I am awaiting a response from them, but even they are up in the air at present!

 

[Deleted member 21258]

It is changing from next April 2018(IIRC this was one of the many changes that was meant to be in this years finance act then got put back due to the general election being called, as there was not enough time to do all the readings etc in parliament).

Some light reading here :-

https://www.taxjournal.com/articles...yments-updated-legislation-published-21092017

https://www.taxinsider.co.uk/1735-Changes_To_Termination_Payments.html

https://www.cchdaily.co.uk/ps30k-tax-free-redundancy-payments-be-scrapped


Your payroll department should be able to advise on what will and what wont be taxed/NIC of any payments you are due.

 

[JT77]

thanks Darren

 

[GG26]

It has always been the case that any salary that you were contractually entitled to does not qualify for the £30k exemption. The main change seems to be a clarification that any payment in lieu of notice is caught as taxable earnings, whereas before this depended on how the employment contract was worded.

 

[chrisd]

It has always been the case that any salary that you were contractually entitled to does not qualify for the £30k exemption. The main change seems to be a clarification that any payment in lieu of notice is caught as taxable earnings, whereas before this depended on how the employment contract was worded.

I might be totally wrong but I understood that the payment in lieu of notice wasn't WAGES it was a penalty for breach of contract by the employer, so it wasn't liable to income tax deduction.

 

[rudebhoy]

I might be totally wrong but I understood that the payment in lieu of notice wasn't WAGES it was a penalty for breach of contract by the employer, so it wasn't liable to income tax deduction.

pretty sure I didn't pay tax on my 3 months worth of PILON when I took redundancy 3 years ago, and I worked for a multinational organisation who would have done everything by the book.

 

[GG26]

I might be totally wrong but I understood that the payment in lieu of notice wasn't WAGES it was a penalty for breach of contract by the employer, so it wasn't liable to income tax deduction.

My understanding was that it depends on how it was written in the employment contract. If it stated that the employer had a right to end a contract by making a payment in lieu of notice it was contractual and therefore taxable as employment income. Where it was silent then it could be argued to be for breach of contract and therefore potentially not taxable.

 

[JT77]

it seems a very grey area, hopefully we will get clarification, but may have to wait til November