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Tax on redundancy pay

(4 Posts)
adviceneeded737 Fri 28-Aug-09 10:12:27

I need advice please on how to work out how much tax I need to pay on my redundancy payment.

I was a lower rate tax payer until the end of July and I have just received my redundancy pay. It has been taxed at the basic rate but I can't help feeling that I need to pay some of it at 40% because it is £8k more than I expected.

Is this something that my organisation should have taken care of via the PAYE scheme or is this something I need to do myself? Is there a definitive way that I can use to work out my tax liabilities?

In addition I start my new job soon which will be a higher salary than the previous job (only by £2k) so will this be taxed at 40% until April 2010.

If it helps, my salary was just above the average annual salary (£25k?) and my redundancy pay was three times that.

TIA

prettybird Fri 28-Aug-09 17:00:38

The first £30k of redundancy pay is free of tax - so unless you have got loads you should not have been taxed at all. Your orgnaisation should have dealth with it and known not to tax you- but if you are not in contact with them, ring the Inland revenue and ask them what to do.

MrsHappy Fri 28-Aug-09 17:15:45

- Any element of a pay-off that is contractual (e.g. payment in lieu of notice where the contract permits the employer to pay in lieu) is taxable in full at the rate which is appropriate depending on your taxable income for the year.

- The first £30,000 of a compensation payment (i.e. which falls outside of the contract) is tax-free.

- Anything over £30,000 is (income) taxable at the appropriate rate. Whether this is basic rate or 40% will depend on how much you have earned in the tax year including any settlement figure to the extent that this exceeds £30k.

- If you have been given your P45 already (which is usually what happens) even if you are a higher rate tax payer the employer can deduct tax at basic rate. They sometimes do this because they thingk it is a favour to the former employee (since it gives a cash-flow advantage). But then you would need to account for any extra tax you should have paid via self-assessment.

- You will be a higher rate tax payer for the purposes of your new salary if in total your taxable income has reached higher rate. Not sure what higher rate currently is, but the HMRC website will have the bands.

HTH

adviceneeded737 Fri 28-Aug-09 19:48:26

Thanks for the responses.

I still have not received my P45 even though I left 4 weeks ago so will have to chase my former employers for that.

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