redundancy levels advice

Companies often pay more just to get rid of people. In fact, so I am told, some people make a career out of being got rid of. Surely, if a company wishes to get rid of someone then it is entirely up to them - and their shareholders - about how much they pay, how much they want to get rid of that person.

Afaik, you can make an ex gratia payment of whatever you choose. From the employee's point of view, the first £30K (*) is tax-free and the rest is considered income and lumped in with the usual PAYE calculations. I may be wrong, but I don't think any of it attracts NI. You can also avoid tax on a further £8K if you offer relocation expenses, or on amounts paid straight to a pension scheme.

(*) A figure unchanged for many a year.

A rule of thumb when I was made redundant was that a decent payoff was 1 month of salary per year of service, elevated to two months for service beyond the age of 40, three months beyond 50, plus three months "in lieu" of notice. I honestly don't know what passes for decent nowadays, except that as far as directors are concerned, the sky is the limit.

Any redundancy payments above 30,000 are taxable. Statutory redundancy payments are the minimum not the maximum.

You can pay whatever you want (and can afford).

There is a tax-free allowance of £30,000. Anything above that will be taxable in full, but no NICs are normally payable.

See this leaflet on the IR site

Bitstring , from the wonderful person Ian Diddams said

What's the problem, exactly? Afaik you can give whatever size golden parachute you like .. if it is not contractually required, then £30k is tax free, the rest gets taxed as the employee's income.

You can also chuck what you like into a pension fund for said employee (although that may now be limited to a miserable 1.x million or something). That =is= tax free, although the employee can't get it until they are 50, and have to take most of it as an annuity.

On Thu, 15 Apr 2004 20:42:51 +0100, John Laird wrote (more or less): ...

n.b. Pay in lieu of notice /is/ taxable, even tho' the actual redundancy money is not.

Cheers, Euan Gawnsoft:

Symbian/Epoc wiki: Smalltalk links (harvested from comp.lang.smalltalk)

In message , Ian Diddams writes

Yes. I know someone from a Xerox startup that folded that got a very handsome redundancy (wiped out their mortgage).

If this loyal employee is a relation (lets say your wife), I could understand the IR having problems with it (as they seem to have problems with anything related to you, the business owner). Otherwise I'd have thought "Take a hike, we can award what we like", was the right attitude.

I'm not an accountant and I'd definitely be asking mine for advice on this, not a public newsgroup. I recommend you do the same. Must be worth an hour of his time surely?

Stephen

I expect you are right. However, I did use quotation marks - and my redundancy letter merely stated the entire amount was an ex gratia payment. But everyone knew how the calculations were arrived at.

Exactly. having done exactly that the Inland have got all uppity and are saying it is outside of "normal business practise" and are trying to prevent it... or rather they'll accept the statutory amount with a view to "reviewing" the difference. There is NOTHING in the IR leaflet regarding redundancy payments that says a business cannot pay up to 30K redundancy, but the IR seem to think differently.

I argue that its MY business and this MT decision how much I paid - notwithstanding the 30K limit, and the statutory amounts.

I was hoping to find examples of businesses that have paid in excess of statutory redundancy (as I am sure must be the case in many cases) to boost my argument.

The IR seem to be saying you can pay statutory rates up to a level of

30K but don;t think about doing anything above that - which is plainly stupid.

ian

which woud rather raise the question "why" ? Aren't spouses still employees? Ask IDS and whoever was investigating him and her!!!

Oh I've done that of course!!! And utilised some tax protection insurance with a team of specialists. But it doesn't do any harm to produce any evidence etc that may help them.... (the specialists at least who seem to be prepared to lay down and accept whatever the revenue say!!)

ian

How about you own a company and decide that you don't like paying income tax. So instead of paying youself say 40K per year - all taxed, you pay yourself

10K pa and employ your wife for a few days. Make her redundant and pay her 30K redundancy. In effect you pay tax on 10K and get 30K tax free.

This may look a bit suspicious granted.

To answer the OP, you can certainly give an employee more than the statutory minimum. When I was made redundant, I got 12 weeks pays + 2 weeks pay for every year of service. Some of my high-rolling, long-serving colleagues certainly got in excess of 30K.

Hope this helps

Pete

In message , Ian Diddams writes

The IDS thing was an internally motivated storm in a teacup designed primarily to remove him from the non-leadership of the Conservative party. They succeeded. Dishonourable way of removing him, but thats politics.

As for the IR, well I agree with them if its a tax dodge, but I disagree with them if its genuine. The IR seem to think many genuine things are tax dodges. If your wife has a contract of employment and you have plausible reasons for making her redundant, the IR should find it hard to argue with.

I can't remember the name of the Xerox startup, but it was based in Cambridge and folded a year or two back. It existed for a few years. Those that climbed aboard were given very generous settlements when the whole thing collapsed (my friend had been a Xerox employee for a long time prior to this which may explain the healthy sum they received). You may want to look it, its probably still mentioned on a corporate website somewhere.

Stephen

Bitstring , from the wonderful person Ian Diddams said

Is complete cr&p. When I last made myself redundant (my company were closing the plant, I was the one who stayed to finish the job) I paid myself =way= more than statutory limit, I assure you. I think it was along the '3 weeks per year of service, 4 weeks per year past age 40' .. calculated on full salary, benefits, etc.

If the wife is a relation, it won't just be the IR that has a problem with it.

A few days , yeah! What about 8 years?

ian

Re-employ her for a few days *each* year. And while you're at it, sack yourself each year too.

In message , Ian Diddams writes

Not a problem I would have thought. Longer than that Xerox startup I mentioned.

Yeah, that third eye, always puts me off.

When the Swiss multinational I was working for in 1992 decided to pull out of the UK I had the choice of going to work in Switzerland or voluntary redundancy. The decision was easy for me because (a) I hate Swissland and (b) the redundancy pay on offer was equal to the period of notice in my contract - three years pay. Whoopeee! My boss got five years pay. All of this was tax free back then, rules may have changed since of course.