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bigduckontax, Accountant
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I have recently been made redundant. My gross taxable pay for

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I have recently been made redundant. My gross taxable pay for 2015/2016 will be £57755.00. My tax code is 769L. Tax tables show that on this amount I should pay £13669 income tax.
I am looking to make a payment of £23,000 into a personal pension before the end of this tax year. Am I correct in assuming that this will reduce my gross taxable pay to £34755.00 and my tax liability for this tax year to £5413.00?
Submitted: 1 year ago.
Category: Tax
Expert:  Sam replied 1 year ago.
Hi Thanks for your question - I am Sam and I am one of the UK tax experts here on Just Answer (and ex HMRC and now run my own accountancy business) It does not reduce your pay but extends the basic rate band instead so Can you confirm that the £57755 is all pay to date plus taxable redundancy and any projected income you may earn from date of redundancy to 05/04/2016 Please also advise the taxable benefits you have in employment or advise what has reduced your tax code from 1060L to 769L How much you may already have contributed to the pension scheme throughout the year (from 06/04/2015 to date) as there may be restrictions on what you can pay in and get tax relief upon And note that additional tax releif only applies for the amount and above the basic rate band contributed - so not the whole amount I am afraid.But I can give you the correct answer with the above information provided Thanks Sam
Customer: replied 1 year ago.
Sam
My final pay slip shows taxable pay £38366.00 in addition I have also been in receipt of a final salary pension this will total £19388.46 for the tax year making a grand total of £57755.19.
I received a redundancy payment of £103736.67. I took £30,000 tax free and the balance of £73736.67 was transferred directly into my defined contribution pension.
My tax code has been reduced due to me having a company car. My original code for this year was 590L but this was amended to 769L as the car was handed back on the 18th December.
If I was to transfer an additional £23000 into a pension what would be my tax liability for this tax year? I believe that it should be £5413.00
Expert:  Sam replied 1 year ago.
Hi Thanks for the information provided. Your income will be treated as Pay 38366Pension £19388Taxable redundancy £73736Company Car approx £2910 Total relevant income £134400 You paid £72736 into the pension pot and wish to transfer a further £23000 into the pot - and this total contribution (amounting to £95736) is less than 100% of your relevant income BUT the limit is set at £40000 that you can put into your pension pot but possibly you have unused allowances from the last 3 years so I will assume this to provide you the answer you actually seek) So assuming all the contributions are due tax relief then Basic rate band 2015/2016 £31875 plus extension of £95736 = £127521You will lose all your personal allowances as your income is in excess of £100.000 (and the for every £2 over this threshold your personal allowances reduces by £1 - so as more than £120,000 NIL personal allowances) So of total income £134400£127521 x 20% = £25504.20£6879 x 40% = £2751.60 Total tax due £28255.80 From which you deduct what has been paid. (from the salary to date of redundancy, the taxable redundancy payment and the pension payment) which should create a tax refund - Thats how HMRC manage your tax liability,. and not the way you are suggesting. ThanksSam
Customer: replied 1 year ago.
Sam
I have a carry forward from previous years for my pension contributions, which will enable me to deposit an additional £23000 for this tax year.
I am afraid that you have really confused me. My understanding was that the first £30,000 of my redundancy payment was exempt from income tax and the remainder of the redundancy payment was also exempt as it was transferred directly into my pension. Looking at your calculations I will owe the tax at the year end as I have only paid £15261 tax this year.
At present I am not happy with the information that you have provided.
Expert:  Sam replied 1 year ago.
Hi Thanks for your response Its not just the £23000 its also the additional lump sum you made from the redundancy package and your understanding of this being exempt is incorrect.Its HAS to be included as part of your net income position - and I am sorry you are not happy with my response but you would not thank you for just providing a response that agreed with yours and was incorrect.I can either provide the expert opinion you sought which I am sure you can appreciated is what you asked for - or just appease your belief and you have the shock of a massive tax bill year end ! Your employers have clearly misled you or you have proceeded without seeking expert advise - but either way the payment has to be considered to allow the correct tax position to be determined as it arises solely due to the redundancy and then tax Lorelei provided to balance out the position, you cannot simply ignore this huge taxable element of redundancyThe act of then pacing it into a pension pot is a separate transaction entirely. And whilst paying this lump sum into the pension pot is a tax efficient move - it still has to be brought into play for both income and tax purposes and then releif given for the payment having been made up to the limit of relief due. I am sorry you are not happy Thanks Sam
Customer: replied 1 year ago.
Sam
Many thanks for your further response.
As I have provided my income details for 2015/2015 are you able to confirm the total amount of tax that I will be due pay for tax year 2015/2016?
Expert:  Sam replied 1 year ago.
Hi I have done in my calculation which was £28255.80 you then advise that you have only suffered £15261 which means you will owe HMRC £12994.80 And you may wish to complain to your employer for failing to make the appropriate tax deductions from the taxable element of the redundancy or appeal to HMRC on the basis that the employer made the error (but as this is new position they may refuse the appeal) so I would make the employer answerable initially.Let me know if I can assist further and it would be appreciated if you would rate me for the service provided rather than the fact you did not like the answer provided.Thanks Sam
Expert:  Sam replied 1 year ago.
Hi
Sorry you advised that all the information was for 2014/2015 but have asked for the tax owed 2015/2016 - can you clarify?
Thanks
Sam
Customer: replied 1 year ago.
SamI need a stiff drink!!!From the information that you have provided it would appear that the issue is with the £73736 from my redundancy that was transferred directly to the pension and thus avoided tax. I am sorry if I sound rather dim but my understanding was that payments made to a pension would reduce my tax liability. Over the past couple of years I have been paying approx £20,000 P.A into the pension which has reduced my taxable pay. Why does this not apply to the redundancy payment?
Customer: replied 1 year ago.
SamBefore deciding to take redundancy I took the advice below from the Pensions Advisory Website. The £73736 did not show on my payslip. Could this mean that it was a "redundancy sacrifice" ?From a pensions point of view, redundancy gives you several choices. You can keep your pension benefits where they are, and even continue contributing to the workplace scheme. Or, you can transfer what you’ve saved to a new pension scheme.You can also use part of your taxable redundancy payment, to make pension contributions. Or, if your employer agrees, you could give up some of your redundancy payment as an employer contribution to your pension. This is known as a ‘redundancy sacrifice’.If you decide to make additional payments into your pension, just be careful that if you do arrange additional contributions, you don’t exceed the annual allowance, as payments above this are subject to tax.
Customer: replied 1 year ago.
SamSorry. All the figures supplied relate to 2015/2016
Expert:  Sam replied 1 year ago.
HiG & Ts on the way! You are not being dim at all and you are right that making a payment into the pension scheme would and should reduce your tax liability.However your employer failed to tax the taxable element of the redundancy - from which then the tax savings for the pension contribution is offset- but as you have paid NO tax on the this lump sum (and the employer have applied the tax law incorrectly) then you in fact OWE money. So we have two occasions (and this is just looking at the main position)1) you were made redundancy and had a nice lump sum of which the first £30,000 was paid tax free and the balance should have been subjected to tax whatever you did with that money - this DID NOT take place THEN2) The taxable element of the redundancy payment then would be placed directly into your pension plan - attracting 20% tax relief at source (and then this would have to be established whether within the £40,000 limit permitted and with carried forward of unused limits for the past 3 years) which then would be due a FURTHER 20% (or your highest rate of tax less 20% at source) tax relief You cannot pretend this lump sum did not exist for tax and pension relief purposes.Then we have the further issue of the £23000 and then1) is there sufficient relief allowable for contributions when looking at that years £40,000 limit plus the unused carry forward of contributions for the last 3 years which is a separate issue but none the less relevant as you have made contributions throughout the year from your salary AND then the large £73726 lump sim payment and then now wish to ask after £23000 (which as would be made now in 2015/2016 is irrelevant to bettering your tax position for 2014/2015 as this si when the highest tax position arises due to redundancy and the fact the company car formed part of the redundancy package so ist tax implications fall fully into 2014/2015If you now (in 2015/2016) make a £23000 payment into your pension pot we have two issues1) depending on your level of income this year is it going to attract more than 20% tax relief (which is given at source)2) Do you have sufficient net relevant earnings to substantiate this payment being due relief. I understand fully about redundancy sacrifices but this does not stop the taxes being due and the reliefs given to NOT take place in the right order. I can only advise you what the tax offices position is on this matter Thanks Sam
Customer: replied 1 year ago.
SamJust to clarify re the pension carry forward. For tax year 2015/2016 I could contribute a maximum of £116737 which includes a carry forward of £76737. So far this tax year I have contributed a total of £93245 (including redundancy payment) hence my original question regarding making an additional deposit of £23,000.
If as you state that I should have had tax deducted from the payment of £73736 which I made into the pension, then I will be taxed twice on this sum as I will also be taxed when I draw the pension?
Expert:  Sam replied 1 year ago.
Hi Thanks for your response If you wish advise re the available unused relief for pension contributions I am afraid you will need to list this as anew question as I have to assume this was all looked at accordingly before agreement was made - if agreement was not made and appropriate calculations considered then this is a separate issue from the one we have in front at this time But the other part of your question - you are not being taxed on the pension contribution made. You are being taxed on the redundancy payment made - and then being given additional tax relief contributions due to the fact you made a lump sum contribution - these are two issues - they jusy happen to involve the one and the same lump sum of money. Then when you draw the pension (which is yet another new topic but I will answer this one as partly relevent to the fact you have had additional relief and then I can offer you continuity on the supply of my answer) you can have the 25% tax free lump sum - then the pension remaining can either be transferred to a annuity OR paid out as an annual pension for your remaining years - IF you just draw out the whole pot so its accessible to you rather then ties up in a continuing pension.annuity position - then you yes will suffer tax on the 75% But please note we are now steering way out of what your initial question asked - and i ave fully answered this element and we are now traying into associated (but new nonetheless) topicsI can either get you to list these as anew questions OR offer additional Q & A time - which I am afraid will incur a further fee. Let me know how you wish to proceed, but it would be appreciated if you could rate me for the level of service (rather then you not being happy with the answer) in the meantime Thanks Sam
Customer: replied 1 year ago.
SamMany thanks for all your responses. I can confirm that this will be my last question.If the £73736 redundancy payment had been taxed by my employer then I would have received £46041.60 i.e taxed at 40%. Could I then have made a payment of £46041.60 into my pension and reclaimed the 40% tax paid?
Expert:  Sam replied 1 year ago.
Hi
Of the £46041.60 left you would have been given 20% relief at source (added onto the pension payment and then claimed a further 20% (or highest tax rate less 20% awarded) from HMRC through your self assessment - OR if you had still the £30K tax free and choose to add this to the £46041.60 - so make a payment of £76041.60 (again unused relief carried forward and £40,000 limit permitting) then you would again have been awarded 20% tax relief at source (added to the pension payment) and then claim the additional relief (highest rate of tax less 20% already awarded) through self assessment and also have claimed the tax suffered on the lump sum pension payment - which would have been brought into the equation and craeted a tax refund
Thats how it all works
Thanks
Sam
Customer: replied 1 year ago.
Thanks SamSo it sounds as though I would have been able to claim a refund of the tax that had been paid on the original redundancy sum of £73736
Expert:  Sam replied 1 year ago.
Hi
Thanks for your question
Yes indeed
Thanks
Sam
Customer: replied 1 year ago.
SamThanks for all your help. I know that I have taken up a lot of your time. From the comment above it may well be that I will not owe the tax man a large sum, however, I am still none the wiser about making an additional payment of £23,000.Not sure if our wires got crossed somewhere along the way but I will obviously need to get a second opinion. The Company I worked for was HSBC Bank and I would hope that they would be fully aware of the tax implications of making this payment direct to the Defined Contribution Scheme.
Expert:  Sam replied 1 year ago.
Hi Thanks for your response Right lets now deal with that factor Does the contributions made through your salary in 2015/2016 and the lump sum and this £23000 stay within your £40.000 limit for this year and any unused contributions carried forward? Of so then yes you can make this and I included this in the calculation I made for you by extending the basic rate band by both the £23000 and the lump sum you paid into the pension pot. Thanks Sam
Customer: replied 1 year ago.
SamI know that I can make an additional payment into the pension of £23000 for this tax year. I needed to know if this would be tax efficient but then I became concerned that I might owe the tax man £12994 for this tax year. I have looked on various websites which explain that my company can make a redundancy payment direct to the Defined Contribution Scheme, which saves me paying the 40% tax and then claiming it back at the end of the tax year. I think you will understand why I am confused and need to seek a second opinion.
Expert:  Sam replied 1 year ago.
HI You owe £12994 IF you make the contribution. If you don't then you will owe more See original calculationYour income will be treated asPay 38366Pension £19388Taxable redundancy £73736Company Car approx £2910 Total relevant income £134400 You paid £72736 into the pension pot and wish to transfer a further £23000 into the pot - and this total contribution (amounting to £95736) is less than 100% of your relevant income BUT the limit is set at £40000 that you can put into your pension pot but possibly you have unused allowances from the last 3 years so I will assume this to provide you the answer you actually seek) So assuming all the contributions are due tax relief then Basic rate band 2015/2016 £31875 plus extension of £95736 = £127521 - this included the £23000 You will lose all your personal allowances as your income is in excess of £100.000 (and the for every £2 over this threshold your personal allowances reduces by £1 - so as more than £120,000 NIL personal allowances)So of total income £134400£127521 x 20% = £25504.20£6879 x 40% = £2751.60 Total tax due £28255.80Then you advised that you had paid £15261 tax this year. which meant you would owe £12994.80 If we exclude the £23000 then the tax bill will work out as £4600 more (£2300 x 20% relief advised in the first calculation) Thanks Sam
Customer: replied 1 year ago.
SamI will seek a second opinion as you are stating that the money paid into the pension pot will be classed as taxable income. From all the information I have received, money paid into the pension is classed as non taxable.Regards
Adrian
Expert:  Sam replied 1 year ago.
HI Adrian
Thanks for letting me know but I shall opt out as I have spent a lot of time with you when I could have been helping other customers and you have rated me negatively as you do not like the answer.
The money you placed in the post IS taxable income as came about due to redundancy that cannot be ignored - and even if we could you still owe HMRC money and possibly will exceed your pension permitted allowance - this has been like trying to unravel a ball of string with misadvise given already and I had hoped you would have accepted the responses due to the time and effort taken to explain why things were as they were .
I shall opt out so another expert can help you.
Thanks
.
Customer: replied 1 year ago.
I was made redundant 18.12.15. I was offered a severance payment of £103736.67. I elected to receive £30,000 tax free and the balance £73,736.67 to be paid directly into the company pension scheme be my employer. My belief was that this payment of £73767.67 was a redundancy sacrifice and according to the blog below should not be liable to income tax as the payment had not been made to me. Can you please clarify if I am liable to pay tax on this payment?Tax Professional's response
9 Jan 2015
TonyTax
TonyTax
Tax ConsultantHi.If you sacrifice some of the redundancy pay and have your employer pay that money into your pension, you won't pay tax on it as it was never paid to you and your employer will still get tax relief on the payment.Provided the employer does the paperwork properly and that the sacrifice agreement is in place before the payment is made, there really isn't anything to stop you sacrificing some of the severance pay. You also need to avoid breaching the annual allowance which may result in a tax charge. You can read about that here.
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer, and happy to be able to help you with your question.
The moneys paid by you or your employer into your pension fund in the 15/16 tax year may not exceed 40K although if you have spare pensions allowance from earlier years this can be used up also. The allowance limit for 12/13 and 13/14 was 50K. These payments in are aggregated and, in any event, may not exceed 100% of your emoluments.
The moneys paid in to the pension fund direct by your employer do form part of your income for the tax year in which the deposit is made.
That, in a few words, is how the system works.
I do hope my reply has been of assistance.
Customer: replied 1 year ago.
Keith
If my understanding is correct I could kiss you!!!The funds paid into the pension scheme are within my pension allowance as I had a carried forward of £76000 plus this years allowance making a total of £116,000.
You will see from previous answers that I had been advised that I would be liable to pay income tax on the pension. contribution of £73736. You state that this pension contribution does not form part of my income. Therefore, I will not need to pay income tax on the payment? Please confirm.Many thanks
Adrian
Expert:  bigduckontax replied 1 year ago.
On the contrary Adrian I said:
'The moneys paid in to the pension fund direct by your employer do form part of your income for the tax year in which the deposit is made.'
Thus the moneys paid in do form part of your emoluments and will be subject to Income Tax. However tax relief on pension contributions will relieve a great deal of the impost.
I am so sorry to have to rain on your parade.
Customer: replied 1 year ago.
Keith
Sorry I misread your reply. I trust you will understand why I am getting confused as this contradicts the answer given by "Tony Tax" above.
How does this employer contribution to my pension differ from the regular monthly contributions which my employer makes but are not subject to income tax? I thought that using redundancy sacrifice was a way of avoiding the income tax?RegardsAdrian
Expert:  bigduckontax replied 1 year ago.
Wee actually it was Sam Tax who gave you the first steer, but then opted out.
The tax treatment differs because you are no longer employed by the organization. However, almost certainly, the tax relief will wipe out this additional taxation and the result will be the proverbial lemon.
Customer: replied 1 year ago.
KeithThanks for your reply. Unfortunately, if the £73736 is classed as taxable income this will push my gross income for the year over £100,000. I believe that I will owe £15,000+ in taxRegards
Adrian
Expert:  bigduckontax replied 1 year ago.
No Adrian, because the tax relief will take it down again and make the payment neutral. From the tenor of earlier discussions all this pension payment will be allowable against tax utilising brought forward under contributions. Please be so kind as to rate me before you leave the Just Answer site.
Expert:  Sam replied 1 year ago.
Hi Adrian
I hope you can see that the information I provided you with is in fact correct
as I spent along time with you in this matter
Thanks
Sam
Expert:  bigduckontax replied 1 year ago.
I concur with my colleague's advice. She has, however, opted out of this question.
Customer: replied 1 year ago.
KeithI have looked at tax calculators and when I input revised gross salary, to include the £73736, and then enter the total amount paid into my pension then this reduces the tax payable to approx £16,000 which is not much different to what I have paid in the year to date. I am not sure but I believe that Sam may have advised me of the tax due but not allowed for the tax relief due on the £93000 pension payments that I have made.
Expert:  bigduckontax replied 1 year ago.
I could not possibly comment on a colleague's advice, it would be most unprofessional. I merely observe that she correctly noticed that your pension payment exceeded the current 40K limit, but mentioned any unused allowance from prior years as a loophole.
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Customer: replied 1 year ago.
Thanks Keith
Expert:  bigduckontax replied 1 year ago.
Please be so kind as to rate me before you leave the Just Answer site.
Expert:  bigduckontax replied 1 year ago.
Thank you for your support.

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