Change to taxation of redundancy payments

I read a small article in the back of the newspaper yesterday stating that with effect from 6 April 2011 redundancy payments will be fully taxed and the individual will have to reclaim the excess tax back.

Can anyone shed any light on this, please? Dean?

Hand in glove with default retirement legislation changes I think this will have very significant implications in the next year.

FMAAT - AAT Licensed Member in Practice - Pewsey, Wiltshire


  • qwerty
    qwerty Registered Posts: 82 💫 🐯 💫
    Out of interest, do you have a link to the article? I am fairly sure it will written to paint a worse picture (or even incorrect picture) just to make the 'story' better (like most newspapers these days!).

    The changes do not tax the full redundancy pay in full, but instead taxes any taxable amount (over and above the £30,000 limit where applicable) at the employee's rate of tax.

    At the moment, if the redundancy pay is paid after the issue of the P45, the BR code is applied and therefore only 20% tax is duducted. If the person is a higher rate tax payer, they should have paid 40% or even 50% on some of the redundancy payment. HMRC therefore has to wait until 31 January after the year end to collect this additional tax. The rules change this so HMRC will get the tax when the payment is made.

    Also, did you know (on a similar issue) that the BR tax code will not be used for people with second jobs from 6 April 2011. The code 0T will be used instead. In my opinion this make much more sence, as basic rate tax payers will stay pay 20%, but those who earn a lot from numerous jobs could have 40%/50% deducted which will mean more tax being collected at the point of payment instead of up to 22 months later.
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