Any tax experts with knowledge of redundancy pay around? Bf has been told redundancy payment from the Insolvency service was taxable.

[MirandaWest]

My bf worked for a major company that went insolvent and in November 2011 received a payment from the Insolvency Service (he stopped being employed either 2009 or 2010 - not sure as I didn't know him then).

He has recently had P800s for 2011/12 and 2012/13 wanting a total of about £750 unpaid tax. Most of that relates to this payment of £3,200 made in 2011. HMRC have told him that as it wasn't paid by his employer it should have been taxed by them, but having read this it seems that HMRC have been charging tax incorrectly. It says HMRC have systems in place but that doesn't seem to be the case here.

I have said he needs to check with the Insolvency Service exactly what the payment was for as if there were any holiday pay I know that would have been taxable (although as the paperwork he has says there is no tax to pay I feel if there was they should be at least partially liable) and then speak to HMRC again to a more senior person. They have also said it has to be paid back at once rather than through his tax code as it is too much to do that way.

Does anyone know about the tax status of payments received through the Insolvency Service? And what is the procedure for disputing tax liability and payment terms with HMRC if it does turn out it was taxable?

Many thanks :)

Any knowledgable people out there?

The fact that he received through the Insolvency Service is not relevant so far as I know.

He may have received any or all of: holiday pay, pay in lieu of notice (PILON) or redundancy pay.

Holiday pay is taxable.

PILON is only taxable if it provided for in his contract or is customary, see www.nidirect.gov.uk/notice-and-notice-pay (that says it is for Northern Ireland but it applies to the rest of the UK too.)

Redundancy pay is not taxable unless it is more than 30k .

(I never make any money from links in my posts.)

Thank you - the link I gave specifically mentions the Insolvency service as redundancy pay is taxable if not through your employer, but if they are insolvent they can't pay you of course and the Insolvency service can. And the link said that HMRCs systems aren't set up for this and think you should be taxed when it seems you shouldn't.

Hopefully he's spoken to someone who knows more at HMRC this evening.

It is definitely not too much to be collected through his PAYE code.

As far as redundancy it really does depend exactly what the amount is made up of.

I have just read the link you gave (sorry I didn't spot it originally) and it does suggest that it is worth you challenging HMTC on this. The email given at the bottom of that article is from the Low Income Tax Reform Group (www.litrg.org.uk/) - they are a well respected charity and should be able to help you untangle this situation.

HMRC called my bf this morning and he doesn't have to pay tax on the redundancy money . Am glad I made him keep on at them.

Do need to find out about the discrepancy between the 2012/13 P800 and his P60s for that year (he changed jobs part way through so may have something to do with it) but that amount of unpaid tax is only about £100 so not so pressing as the one that's been sorted out)

:)