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TaxRobin
TaxRobin, Tax Consultant
Category: Tax
Satisfied Customers: 15601
Experience:  International tax
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I am considering taking a paid leaver package from my employer.

Resolved Question:

I am considering taking a paid leaver package from my employer. My package would total 60k. I have been advised to take the first 30k (tax free) on my last day of employment (Jn 30th) and take the remaining amount in April 2015 - new tax year. What is the specific advantage here, i.e. what tax will I pay on that remaining 30k? I am considering moving into cotrnact self employed work from February - what is the implication of this on this 30k re tax?
thanks
Submitted: 2 years ago.
Category: Tax
Expert:  TaxRobin replied 2 years ago.
Hello and thank you for allowing me to assist you.
Your redundancy payment of £30,000 would not be taxable and would not be subject to National Insurance. Any amount above that would be subject to tax.
This is so even if you receive the amount after you have left and in the next year.
If your employer pays your redundancy pay before you leave the employment, form P45 will reflect the pay and tax deducted through Pay As You Earn (PAYE). You will pay tax on any amount above the £30,000.
Customer: replied 2 years ago.

Thank you.

So what is the advantage of the spread of payment option, as there must be one, otherwise the company would not offer it.

Also, when would i pay tax on this additional 30k in April 2015 if i received it then, and I am self employed would I pay it at lower tax rate for self employed people (25%) or at the 40% rate I am paying at my current employer?

Jill

Expert:  TaxRobin replied 2 years ago.
If you take the payment in the next year then your pay may be lower. The two payments will be taxable in two different tax years.
Your overall tax is going to depend on your total income for the year you leave this employment. Spreading the total over 2 years assists you in not paying the tax on the total in the first year.
Your tax on the additional £30,000 would be at your marginal rate. This would still be at your 20% rate.
If the company is not aware of your Self Employment plans then the offer is mean to allow you to stay within a lower tax rate.
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