P45 doesn't show details of redundancy payment and tax paid

A question about : P45 doesn't show details of redundancy payment and tax paid

I took voluntary redundancy from my job at the end of June. I was paid my normal monthly salary around 18th June. I was also sent a P45 at the same time. The P45 gave details of the 3 month's of salary and tax deductions for this financial year. I have just had my redundancy pay credited to my account and been sent a payslip which shows details of the payment and the (rather large!) tax deduction. It seems rather odd that this payment was not included on the P45. Surely if I was to start a new job and give them my P45 I would not be paying the correct tax?

I probably won't be working for quite a while but am hoping to be able to claim some tax back. Again, would that not usually involve producing a P45 when I apply to HMRC?

Best answers:

• Will you not be job hunting, therefore entitled to JSA which is taxable.
  If so, you will be getting more 'income' throughout the year.
  You should do this anyway to get your NI credit.
• The P45 is correct - it shows your emoluments of employment up to and including your last day of service (emoluments = wages, bonus, commissions, holiday pay earned during your employment).
  Redundancy pay is a severance package which, by definition is paid after the employment has ended and so does not go through the payroll and does not feature on the P45.
• It's more than likely that whatever you do it will require sorting out at the end of the tax year with either a refund due or tax owing
• If you get a new job you give the employer the P45 in the normal way.
  Your old employer pays any tax due on the severance payment but only at the basic rate.
  It is your responsibility to complete a self assessment form if you are a higher rate tax payer. If your earnings for the year plus the taxable element of the severance payment drops you into the higher rate tax bracket for this tax year HMRC should send you a self assessment form, but as I say, it is your responsibility, so if it is looking that way, it is worth giving them a ring.
  Otherwise it will all come out in the wash at the end of the tax year.
  The reason employers don't deduct 40% tax on a redundancy payment is precisely because they have no idea how much you will earn between leaving one employment and the end of the tax year. If you earn nothing more, you may be just a basic rate tax payer.
  Hope this helps
• They have taken more than 20% in tax. They did send me a letter before I was paid explaining how it was calculated. It said I would be put on a week 1 code I think? So I have overpaid rather than underpaid tax by my calculations.
  I will leave it until April then I think, although I will probably be looking to start claiming JSA sometime before the end of this tax year. If I have worked it out correctly I think that would be the latest I could claim because I would need to have full NI contributions for the 2 full tax years prior to putting a claim in. There's always the possibility that I will have a job before then but I am concentrating on finishing my degree and sorting a few things out at home first.
• There are three stages of documents that are generated when being made redundant. The first is final payment (salary, overtime (if applicable), holiday pay etc). This produces a final salary slip and payment, and is subject to the normal PAYE and NI deductions and will still take into account your tax code at the time of leaving. This is considered as a pre-P45 payment. Second, a P45 is produced which will be used by next employer or if seeking benefits (e.g. Job Seekers Allowance) will be used by Job Centre Plus. If still claiming JSA in the next tax year (i.e. From 6th April) and the year AFTER redundancy, the Department of Works and Pensions issue the claimant a P60 (as of 5th April - the year of redundacy) and in all probabilty a tax refund, which the claimant will automatically receive. Third, Redundancy Payment - this is considered as a post P45 payment and is taxed using 0T tax code. The first Ј30,000 is tax free. Payments over this amount are taxed as 1/12 of the '20% tax band' i.e. Ј32,010x1/12th =Ј2,668 and taxed at 20% (Ј554 tax paid); then 1/12 of the '40% tax band' i.e. (Ј150,000 minus Ј32,010)x1/12th =Ј9,833 and taxed at 40% (Ј3,933 tax paid) and finally, if the reduncancy figure is high enough, the balance is taxed at 45%. These tax bands are for 2013-14 tax year and will obviously change for 2014-15 and these should be noted if redundancy occurs in the 2014-15 tax year. There's plenty of information on the 'official' HMRC site.
• OP - If you've paid a large amount of tax, it might be worth shunting some money into a pension - if you can afford it, it helps soften the blow.
• Comment reference ZZZLazyDaisy on 21-07-2013: Tax regime changes for redundancy payments were introduced by HMRC in April 2011. Previously, tax was 20% above the first Ј30K and additional tax, if due, was collected after self assessment completion (and I assume collected in the following tax year). HMRC considered this a short term cash flow advantage to the employee and closed the 'loop hole' like they so often do. Redundancy payments are now subject to '0T' tax code treatment. I went through a redundancy process in the 2013-2014 tax year - and this is how my redundancy payment was taxed. I was a Finance/Commercial director of a SME company and calculated my provisional net of tax figures for all payments due; my expectations for net payments were confirmed when final figures went through the official Company Payroll Bureau
• It is possible to mitigate tax charges by 'dumping' into pension - certainlywithin 'normal' salary payments e.g. keeping away from the 40% tax band andmost definitely from Ј100K when the marginal rate rises to 60% at Ј118K (looseЈ1 of personal allowance for every Ј2 earned above Ј100K until the allowancehas 'gone' at Ј118,880 (2013-14), tax then 'returning' to 40% up to Ј150K. N.B.limits as to total amount contributed to a 'Defined Contribution' pensionscheme (SIPP etc) - I think this was Ј50K p.a. then reducing to Ј40K p.a. for2014-15 year. I'm unsure of the tax treatment if some of the 'RedundancyPayment' is 'dumped' to pension - Professional Advice should be sought. Thiswould have to be highlighted within a 'Settlement Agreement'. Also consider (ifit is deemed appropriate from a tax point of view) the maximum pension contributionsthat can be made in any tax year. You could exceed the maximum allowable whentrying to reduce tax. Pension advice should also be taken as it is not alwaysappropriate for some individuals to fully mitigate tax by dumping to pensione.g. Pay a bit more tax and a higher gross figure but still receive a higher net payment and use the differencebetween the higher and lower figure to pay off debts or reduce mortgage etc.that could be charging higher rates of interest than the growth in a pensionfund - ADVICE SHOULD BE TAKEN though!
  I know for many, these figures are pie-in-the-sky(fortunate to be on those sorts of salaries - and a nice problem to have!)
• Noelphobic : I concur with purdyoaten's comment and yes there is much variance in the advice here. To confirm - all redundancy payment is taxed separately from regular salary (see 0T tax code treatment of redundancy pay in previous comment). It doesn't matter what the redundancy amount is, it's ring fenced and does not appear on a P45. If it's less than Ј30K then tax free, over this amount taxed as 0T tax code (as my previous comment).It's CORRECT that redundancy pay does not appear on P45. If you've ceased working part way through the year or even taking Job Seekers Allowance from employment termination to end of tax year, you're more than likely (certainly) due a tax refund. If still signing on after 5th April the DWP will issue a P60 and a tax refund if/when due is automatically sent to you (i.e. Benefits paid plus earnings up to employment termination in the same tax year are added together). If you weren't signing on and you've had no further earnings since your last P45, HMRC will consider your situation. You should not have to wait. HMRC website does have further information on this matter which states their requirements for supporting documentation that's required to get that tax back. I've been through this process ( redundancy in 2013) and currently on JSA. My redundancy was taxed as 0T tax code. Job Centre Plus have confirmed P60 will be issued for YE 5th April-14 and a tax refund will be automatically sent. Will confirm this when it happens.
• Yes, I would/will be pleasantly surprised if this P60/refund occurs sooner rather than later and that the refund amount is correct; I know what the refund should be, give or take. Otherwise as you said I'll have to do self assessment which usually means waiting for P11d - post 6th July 2014 and then delays beyond this (will need to do this anyway as was a Director in 13-14). Job Centre has had my P45 and I can confirm I've seen the relevant numbers on their system - and they have repeatedly confirmed that I won't have to claim tax back - it will happen automatically within 4 to 6 weeks of year end! Won't count my 'chickens' though! Fortunately I'm not desperate for this refund but still want to get loose ends tidied up - quickly. Next job is to sort my pension out with my IFA - budget pension reforms etc. It always appears to be a never ending task sorting personal finances out, but you have to keep on top of it. I was a Finance Director for a large SME so hopefully 'know my numbers'. Still take professional advice though! Need to 'tick the boxes' and then get on with my life - I hit 60 last year.......enough said. Will let you know how this turns out.
• I sent (P50?) to HMRC a few days ago, along with my P45 and the payslip I got for my redundancy payment.
  I did get a fright a few days ago. Someone who works for the organisation i volunteer for, who used to be quite high up in HMRC, said that I wouldn't get a refund of any of the tax paid on my redundancy payment, only the overpayment on my salary. However, he did leave HMRC a while ago so I think (hope) that he's got it wrong and that, if that was ever the case, then things have changed.
  I haven't claimed JSA or any other benefits as yet so it should be straightforward, although I realise I will have to wait a while, especially as I've claimed at a very busy time of the financial year.