I went to work this morning and they let me go. Offered me a pay off which I’m not sure about?

[OhThatHappenedWhatNow]

Under 2 years service. Small family run company.
cited loss of sales this year and offered me 2 months pay with the leaving date of today.

my contract states 1 month either side so I am wondering if their extra month’s money offered should be ex-gracia? If they had offered an extra months salary in a redundancy consultation that would be tax free but I’m wondering if I’m confusing the two with the under 2 years service?

They are paying you a month's salary in lieu of the month's notice in your contract, and an extra month on top.

Seems reasonable to me, because if the company is in financial difficulties and went under, you could get nothing.

I’m asking if the extra month on top should/could be tax free?

the company aren't In any way about to go under but that’s a whole other rant for me to have. I’m happy to walk away at this point although I do want as much as I may be given tax free.

1 month notice period plus holidays owed and taxed
1 month offered on top tax free.

Yes technically they could give it to you as a tax free redundancy payment.

But legally you are not due redundancy pay.

No it’s not tax free it’s not redundancy,

Yes, the extra month can be paid under the £30k tax free limit

Take it and ask for an agreed reference too.

No they can't. It isn't a redundancy. HMRC have tightened up on the rules in recent years. Redundancy payments have a specific meaning in law / taxation. With less than 2 years service you are not entitled to any redundancy payment, and the £30k referred to is specific to redundancy payments.

It is a redundancy situation though, even though she has less than two years service. There is not enough work to go round so her role is being made redundant.

With less than 2 years service you are not entitled to any redundancy payment, and the £30k referred to is specific to redundancy payments.

Not entitled to statutory redundancy no, but employer can choose to pay voluntarily surely and it be counted.

This is PILON. You’ll get all your notice pay in one payment. You’ll pay tax as normal and your job will end immediately.

You cannot receive a tax-free redundancy payment because you haven’t been there for two years. HMRC have tightened up on this as a pp said.

If it comes with a guaranteed reference, take it.

Sorry that you lost your job.
i agree that it is better that they let you go and give you an extra months pay than wait untill they have no money to pay wages.
As you dont have a job lined up tax wise you would be better off it you are paid for this month and next day (monthly amount) through the normal payroll cycle. But that may depend on the lenght of service not crossing 2 years.
also if you are on gardening leave you are still employed in interviews and you can explain that it is mutually agreed.
I would also ask for a written reference (2 if possible) one basic employed from date X to date Y and another a character referrnce. That way if the employer goes bust you have a document for future employers.

The reference thing is a great idea. They have already offered a reference and said my performance isn’t the issue, they are tightening their belt and I’m the last one in.

The PILON is for 1 month and taxable as earnings as PENP. As long as the other month's payment is not contractual or expected, for services, gardening leave or paid as a restrictive covenant, it should fall within the £30K exemption.

The extra month can be paid by ex Gratia if you sign a settlement agreement with them and it would usually specify it in there. What paperwork have they given you if any?

Always try and negotiate more, they won't have gone in with their best offer!

I received a contract stating 1 month each side 9 months after starting
i would have been 2 years 2nd feb 2024.

I’ll happily sign anything for the extra/tax free month.
no hard feelings on either side

I’ve left, they terminated my contract when I arrived this morning and I was home again by 10am

The rules have been tightened in the last few years. Previously if something was ex gratia it could be tax free but not now.

thank you
at least I know now

Yes - they can make it as an ex-gratia payment as part of a settlement and then it’s tax free (anything up to £30k).

The whole amount can be included as you can accept the settlement in lieu of notice to make the whole amount tax free (and leave with immediate affect), depends how you agree it as to whether you have to work one of the months notice.

It might have to be supported by a settlement agreement though which if so you have to get a lawyer to review for you. If this happens then just ask them to pay for your legal fees too (it’s fairly cheap firms like Landau law will do it for around £500).

I would try to negotiate up because it’s a settlement and so saving them the time and cost of going through a more formal redundancy. So don’t be afraid to ask for 3 months total.

Also make sure you’ve considered impact on you as if you need to renew your mortgage or tenancy soon it might cause you problems. So need to factor that in to any negotiations.

If you need any support feel free to message me as I have a bit of experience with this. X

Appreciate you are getting mixed help here but the £30k tax free is absolutely a thing. Here is the government guidance for you:

https://www.gov.uk/termination-payments-and-tax-when-you-leave-a-job/what-you-pay-tax-and-national-insurance-on

Unfortunately it’s not on the payment in lieu of notice (pilon) part - just the over and above. So I was wrong above on that bit sorry.

This isn’t right and there’s a lot of misinformation here. Read https://www.gov.uk/termination-payments-and-tax-when-you-leave-a-job/what-you-pay-tax-and-national-insurance-on

As you say, the payment in lieu of notice is contractual and therefore taxable. I can’t see any grounds under which the extra month wouldn’t be a tax free termination payment though.

Lots of misinformation in this thread. It is true that HMRC tightened the restrictions about ex gratia payments a few years ago, that was in relation to payment in lieu of notice (PILON).

Essentially your PILON (1 month) needs to be taxed with the extra payment (equivalent to another month) can be paid as tax free. I would ask for a settlement/compromise agreement that states your agreement to leaving, your notice pay, your agreed reference and your severance pay (as an ex-gratia)

Sorry I got confused.

As others have said the extra month should be tax and NI free.

Apologies.