Tax on Redundancy - mental block

Tax on Redundancy - mental block

Didn't find your answer?

I'm having a mental block doing husband's tax return, which ought to be straightforward as it's all PAYE.

He was made redundant last year and received a nice payout. Payroll deducted tax at 22% (on the taxable bit - there was also £30k tax free), but on doing the online tax return, it seems there is still a hefty chunk of tax left to pay.
Redundancy lump sum has pushed dh well into the higher tax band, so presumably, that means he's a higher rate taxpayer for last year?

But I can't imagine how dh's payroll dept got this calculation wrong, though, as how would it have been picked up if dh didn't have a tax return?
So, I'm presuming I've missed something

thanks for any help/pointers given.
Louisa

Replies (3)

Please login or register to join the discussion.

Euan's picture
By Euan MacLennan
20th Nov 2007 11:04

Two possibilities
When you say that the redundancy lump sum has pushed your husband into the higher rate band, I assume that you are not including the tax-free £30,000.

Look at you husband's P45. Did it include the taxable redundancy pay or not? If not, it was obviously issued before the redundancy payment was made, which is the more common practice. The PAYE rules say that when a payment is made subsequent to the issue of a P45, the employer must deduct tax at the basic rate and not issue a second or an amended P45. Instead, the details should be set out in a letter to the employee.

On the other hand, if the P45 did include the taxable redundancy pay and that put your husband into the higher rate tax band, the employer got it wrong. Even the best run payroll departments can make mistakes when dealing with unusual circumstances such as this.

Thanks (0)
avatar
By AnonymousUser
20th Nov 2007 17:24

PAL
It's very likely that the taxable part of the redundancy payment was paid as a payment after leaving and only taxed at 22%, this is the usual reason for an underpayment in these circumstances.

Thanks (0)
avatar
By User deleted
21st Nov 2007 11:31

Agree with Susan
Very likely that the employer issued P45 and then made the payment correctly deducting tax at 22%.

If the recipient is/was a HR taxpayer then they will need to account for the balance of the tax due vis their tax return. The advantage of this is a cash flow one (i.e. the additional tax will be due by 31 January under SA following the tax year in which the payment was made).

Thanks (0)