A director of a company I do the payroll and accounts for has been paid a low salary in 11/12 (below PAYE threshold) and had a P45 from the previous employer for only a few days of work in April 11.
I have now found out that she had a redundancy payment which was made early in 11/12. This was not included on the P45.
What is the best way for the director to get the tax back asap?
I can do a SA return for 11/12 but not surprisingly she doesn't want to wait until Jan 2013 to get a refund!
However, I'm not sure that trying to get a new tax code for 11/12 and the new company sorting it out via payroll (and waiting for a refund from HMRC) is the best way to go.
Thanks in advance for any advice on the most efficient way to deal with this.
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Depends on what her current circumstances are:
Does she have PAYE work at the moment?
Or
Has she stopped working?
Or
Something else?
what?
If it wasn't included in the P45 figures (which it shouldn't have been anyway) how do you know that tax has been deducted from it?
So, you are talking about a sustantial amount of redundancy, as payments under £30k are not taxable. You can file a SA return for 2011/12 on 6th April 2012 and refunds usually arrive quickest (within a few days) if you have it paid directly to her bank account. But because it may go for security checks (which large refunds tend to do) it could be paid whenever HMRC feel like it.
Redundancy or PILON
Sorry ,if this is an irrelevant issue but many get it muddled.
Be careful and ensure that the monies received are genuinely a redundancy payment, whether statutory or ex-gratia or a mixture of the two, which is tax free up to £30,000 because it is non-contractual.
Otherwise it might well be a Payment In Lieu Of Notice , (PILON), which is nearly always taxable because it is paid under the terms of the employment contract.
As for the mechanics, I concur that you are likely to have to complete a 2011/12 SA TR as soon as possible after 5 April and then chase constantly until your client has the refund. Tell them not to assume it will be quick. The Revenue are outrageously slow in repaying us our own money and of course quick when they think it's their money!
What's wrong with a PILON?
In my experience, PILONs are usually paid when an employee is dismissed and told to leave immediately and not work his notice. Yes - the notice period is specified in the employment contract or failing that, by law, but the payment is for not working under the contract - it is compensation and is a potentially tax-free termination payment.
PILON
If you have e.g., a 3-month notice period but it is agreed that you leave immediately but will be paid your 3 months pay as "compensation", then that money, is taxable because you would have earned it had you simply handed in your notice that day and worked your notice.
Whether or not you work your notice is irrelevant. It is still paid under your contract of employment.
If anyone wants to argue differently, I would be interested to hear the case. Here is HMR&Cs take on the situation. You may need to copy the links into your browser.
What is not taxable, or at least up to £30,000 is not, is any other compensation, statutory redundancy or ex-gratia payment.
Another link to follow the trail is here.
If I am wrong, please put me out of misery and then I will go and sue my lawyer who agreed with my assessment of the situation when I was made redundant in September! I may not be right but I am convinced!
PILONs
Payments in lieu of notice are not always taxable. It's a very widely used phrase (like many phrases to do with termination payments) and might not mean what it says on the tin.
Whether or not it is taxable depends on what the payment is for and what's in the contract. Some contracts say that the employer can give notice or can pay in lieu of notice. That allows the employer to dismiss someone immediately, if the employer wants to do that, without breaching the contract. If the contract is not breached then any restrictive covenants in it remain binding on the employee. A PILON paid in such circumstances would, almost always, be taxable. Why almost always? If the employer breaches the covenant in some other way and then decides later to pay in lieu of notice, that PILON is not a payment under the employment contract but more akin to compensation for breach of contract.
Even if there isn't a PILON clause in the individual's contract, a PILON may be taxable. It may be that the staff handbook or custom and practice by the employer means that employees expect a PILON as a matter of course. Maybe the employer automatically pays PILONs without considering the merits in each case.
Often the payment won't really be a PILON, although it might be called that. It's a sum paid as part of the compensation for the employer's breach of contract. Although, strictly, the employer ought to compensate for the net loss and ought to take mitigation into account (ie if the employee gets another job within the notice period, his loss is less so the compensation should be less), in most cases, the employer simply pays the gross pay for the notice period. Although this can cause confusion (net? mitigation?) it doesn't automatically mean the payment is taxable.
If someone's due a repayment on a termination payment made early in the tax year, I'd be tempted to try a letter to the Revenue, particularly if the individual is outside SA. They can only say no!