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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I left my company with last day effective April 5 2014 (as

Resolved Question:

I left my company with last day effective April 5 2014 (as the P45 states) and was paid a lump sum on April 23rd 2014. The lump sum is taxable and tax has been deducted but what tax year will HMRC assess it as (it wasn't inclued in my P60 for 2013/4)
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

Was this a redundancy payment or a deferred payment such as a bonus or commission? Have you been notified of the gross payment and the tax deducted? Was a tax code of 0T M1 operated against it? Has any of it been paid tax free?
Customer: replied 2 years ago.

It was a redundancy payment - tax deducted (paid via first payroll of the 2014/5 tax year, received a payslip) tax code OT Cumulative

Expert:  TonyTax replied 2 years ago.
Thanks.

Leave this with me while I draft my answer.
Expert:  TonyTax replied 2 years ago.
Hi again.

You should ask your employer to confirm the tax year your redundancy payment will be reported for so as to avoid a nasty shock in the future.

Normally, redundancy payments are made at the same time as the final salary payment or on the day the employee leaves their job. However, such payments are now regularly being made after the date of leaving and they have to be taxed using an 0T tax code. The tax point can be problematical where the leaving date is at the end of a tax year and the termination payment is made in the next tax year.

If you look under the heading "Timing of tax liability" here, for tax purposes "cash termination payments are treated as received when the payment is made or when the recipient becomes entitled to require payment of it." As your payment was made to you after 5 April 2014, it should be treated as a 2014/15 payment so far as you are concerned.

Depending on whether you intend to work again in the current tax year, you may be eligible to apply for an in-year tax repayment by completing a form P50.

I hope this helps but let me know if you have any further questions.
Customer: replied 2 years ago.

So am I correct that because my agreement specifically said that payment would be made after the first payroll following the termination date (specified as April 5th) that date is when the payment becomes assessable as well as being the date that it is paid for the purposes of determining the assessment year?


 


Its a bit of a relief if so as I haven't worked this year since leaving as we're heading to Canada and I was hoping the tax timing would work in my favour!

Expert:  TonyTax replied 2 years ago.
If you have an agreement that effectively says that you are entitled to payment on the company's first payroll date after 5 April 2014, that makes it a payment for the 2014/15 tax year. So, the answer to your question is yes.
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15838
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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