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Sam
Sam, Accountant
Category: Tax
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I am in the throws of being made redundant and negotiating

Customer Question

I am in the throws of being made redundant and negotiating an agreeable exit. I have been offered my company car as part of the package which appears great however I want to legally avoid the tax due which I assume would be payable on the current value of the vehicle . To clarify , my redundancy package is circa 30 k therefore tax free so we're talking about a potential tax liability on the vehicle value £28.000 eg 40% tax rate payer therefore £11,200.
Could the company not gift me the car ? ( they own outright the vehicle) or give me the car some other way ?
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 (I am ex HMRC and now run my own accountancy business) Just because your redundancy package is circa £30,000 does not guarantee that it can be paid tax free - each element of the payment that makes up the package has to be looked at individually such as salary, bonuses, holiday pay remaining taxable (as will the company car) Genuine redundancy payment are tax free So if you wish me to look at your package and how it will be made up (even approx figures(along with pay to the redundancy date approx) Also note that any furtehr work between now and 05/04/2016 will also see this income will also have an overall impactThey cannot make a tax free gift of the car as it would always boil down to the fact it was given to you by reason of employment - which sees it as remaining a taxable consideration (sad I am to say) But it would seem regardless of the £30,000 redundancy that the car will be liable to tax whichever way we look at this so the full £28,000 at your highest rate of tax. The only way you might be able to mitigate this is by making a pension contribution (assuming you have sufficient allowance to make a contribution up to the threshold) which will see you due additional tax releif which in essence wipes out 20% of the tax due on the car tax position) So you break even Let me know if I can assist further Thanks Sam Thanks Sam
Sam, Accountant
Category: Tax
Satisfied Customers: 13810
Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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Customer: replied 1 year ago.
Thanks Sam for the super quick answer ! I have been offered £30,000 redundancy and PILON of salary £38k pension contributions , holidays etc.
Not sure I understand your final point about pension contributions . I will have headroom for making significance one off pension contribution but are you suggesting make a pension contribution of say £28k from the cash part ? That leaves me a car and little cash ??? Or have I completely misunderstood. I do have make some contributions through salary sacrifice but have only contributed around £10 k in 2015 and I'm hoping to be made redundant in the 2016 /17 period therefore have headroom. Apologies for my ignorance.
Customer: replied 1 year ago.
Will you answer my query ? Thanks
Expert:  Sam replied 1 year ago.
Hi
Sorry the delay - your question did not suggest you had any furtehr questions so did not appear on the open questions list.
So the £30K is made of of redundancy and PILON?
Can you break this figure down further as not all of it will tax free and then is the £38K ON top of the £30K and then car on top of that again ?
With respect to the pension contributions - if you had scope to make a further payment into your pension scheme then you would be able to claim additional tax relief if a higher rate taxpayer, as you only get given basic rate relief on the payment at source. But you are limited to a total amount of contributions totally £40,000 (although may have some of the unused relief to carry forward from the last 3 years - but this is something you would have to discuss with your pension provider) I was merely suggesting it as a possible way to reduce some of your tax liability.
Thanks
Sam
Customer: replied 1 year ago.
Thanks Sam
Pilon is basically 6 months pay at circa £38k , ontop is a £30 k redundancy payment , on top is the discussion over the car valued at £28k.
It would appear I will have to pay prevailing tax rate on the £60k ( 38+28 )
I suppose what I need to consider is do I simply lose circa 40% on the 60k to the tax man and then reclaim some relief by laying some cash to my pension pot? ( I do have around £20k headroom in each of last 3 years). Thanks.
Expert:  Sam replied 1 year ago.
Hi Thanks for your responseThats the suggestion I was making to mitigate some of the additional tax charges. You should check with your pension provider how much so far have you contributed through salary and any additional voluntary contributions - and what relief so you have available from the £40,000 limie for this year and any unused relief that you are able to carry forward from the last 3 years which you advsie is available. If its possible (as in you may already have plans to use this lump sum in other ways) then you may want to put some of the £38K into the pension pot so that this creates a tax refund at 20% of the amount of lump sum you put into the plan. Just note that the refund for additional relief on the pension plan cannot be claimed until after the year end (of the year the contributions were made in) Let me know if I can assist further, and if you have all that you need then it would be appreciated if you could rate me for the level of service I have provided. Thanks Sam
Customer: replied 1 year ago.
Thanks Sam .
Expert:  Sam replied 1 year ago.
You are very welcome Thanks Sam

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