Shamefully easy tax question.

Not sure what you mean here. You can earn about 4500 without paying any tax. The next 2000 or so will be charged at 10% tax, and so on through the

22% and 40% bands.

You will not be charged 40% on the entire amount of your income just because you earn over the 40% tax threshold, you will only be charged 40% on the amount that's over it.

Marcus

No, but if after your redundancy, you are going to be out of work next year, then you will more of your basic rate band available for the taxable sum.

But as long as the redundancy payment is non-contractual and below around 25K (might be more?), there isn't any liability to tax on it. I think that's right, but corrections are welcome.

Matti

Read the question carefully ...

"Obviously I'm going to be paying higher rate tax on the majority of the lump sum (after the first 30K) one way or another, but if I can reduce the total liability it's got to be worth a shot."

I can I made redundent by your employer please :)

Bitstring , from the wonderful person Fido said

Depends whether you expect to be employed again real fast next year, or if you are going to be off work for a while. If the latter, then you can use your next year's tax allowances against the lump sum (past 30k), and pay 'some at 0%, some at 10%, some at 22%' tax instead of 'all at 40%'. Of course if you are likely to earn just as much in 2005/6 as in 2004/5 then it makes never-no-mind anyway.

I doubt that you can defer 'part of the redundancy payment', but you can probably defer all of it. Just work your notice or something. As long as it's not too obviously a tax dodge ..

The other option is to just forgo some amount of redundancy pay (this is your employer being nice after all, there is no legal requirement for them to pay that much), and then your nice employer might just (in a compeltely unrelated act of charity) toss it into a pension fund for you instead. No tax at all. Of course you then can't get it until you retire, and have to spend 75% on an annuity ... but if you are facing a

40% tax bill, and are near retirement age anyway, it might still come out as a good deal.

The next tax year starts April 6th - more than a few days away However, if you can get paid after that date - perhaps under a separate consultancy agreement - it will save you 40% tax depending on your earnings next year and you will pay 10%, then 22% (after your personal allowance currently 4745.) Note - the 30,000 redundancy must not be contractual, otherwise it is part of your taxable income. Also, a taxman could say that if they pay you next year you were not really redundant.

Advice given freely, but it's just a non-actionable comment.

Be my guest, but you'd better be quick!

F.

Thanks, I think that clarifies things nicely - now I can explain myself when I'm crawling to HR, begging for a deferal.

F.

Gotcha, when I said it was a matter of a few days, I meant from my last day of service, which will be the end of March. I wonder what my chances are of persuading them to keep me on, unpaid for a week...

Thanks to all, F.

"Fido" wrote

Quite good, I'd have thought - they'd get a whole week's work out of you for nothing!!

Bitstring , from the wonderful person Fido said

If they owe you vacation, insist on working it instead of getting paid it in lieu. That's what I did .. of course I was sort of making myself redundant, (last man out and all that) so I didn't have too much trouble convincing myself. 8>.

Harry Ramsden?

Good idea, but they're insisting that all leave is used by the last day. I suppose appealing to their better nature is out of the question ;o) F.

Human Resources. It's what Personnel Departments like to be called these days.

I wish someone would take them to the HR (Human Rights) court to make them desist from using such an overtly degrading term. The idea that staff are thought of as mere resources is utterly repugnant.

I agree, it's a terrible phrase, and so out of keeping with today's ridiculously touchy-feely office language. But it seems to go along with titles such as "People Manager" in today's workplace. I do my best to annoy such "people people" by using unfashionable terms like wage slave and personnel, but they don't like it up 'em.

Andrew McP