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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15979
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I have received lump sum as part two of a redundancy package

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i have received lump sum as part two of a redundancy package i took last year, my tax code is shown against it as 0T. i recently was given a tax code of 110 which i believe is £11000. I was taxed heavily last year on the first half of this lump sum, because the figures exceeded the £100,000 limit i lost tax code because of it. I argued that as the lump sum had been seperately taxed at the high rate it should not be counted again, as with my pension and lump sum my overall earnings would exceed the limit, i got roughly half my code i have had the second half this seems to have happened again as it looks like 43.5% of the sum has been taken in tax, i assume again i will not get my full tax code as the money to me is being double counted and it also reduces my passion each month as i get hit by the higher rate of tax which would not happen without the lump sum artificially boosting my yearly earnings. I feel that i am being overtaxed twice.
Hi. You will not ultimately pay tax twice. That would be ridiculous. At the end of the tax year, your total income will be totted up and the tax calculated. The tax you will have paid by then (from your salary and the redundancy payment) will be deducted and you will almost certainly be entitled to a repayment. Whether you will get any or all of the personal allowance depends on what your "adjusted net income" is. Look here for information on that. Post P45 redundancy payments are deliberately taxed using an 0T tax code to avoid a loss of tax to HMRC. The reason for this was that prior to 2010/11 or 2011/12, such payments had 20% tax deducted. Many employers failed to tell redundant employees that they may have more tax to pay and when up to 22 months later they got a tax bill many had spent the money thinking that the tax position was settled. HMRC wrote off millions. Hence, the 0T tax code has been used since then which means that many taxpayers will have too much tax deducted so that it will be incumbent on them to make a claim for repayment. Take a look at the notes here and here for more information on this. I hope this clarifies things for you but let me know if you have any further questions.
Customer: replied 1 year ago.
Ok, thank you for the answer , re reading my question i see the word passion crept in instead of pension, sorry for that. It does not seem right that my pension which would have only attracted the base rate of tax will attract the higher rate due to a lump sum being added to it even though the lump sum has been taxed. This impacts dramatically on my take home pay, can i do anything about that situation?
If HMRC can see that your income for the tax year will be more than £100,000 they will limit the tax allowance given accordingly. Ultimately, all your income is combined to determine your eligibility for the personal allowance. However, if you call HMRC on the number here and tell them that you have clearly overpaid tax on your redundancy payment and will still be so but to a lesser extent if they give you back the allowance, they may consider it. I'm not overly hopeful though. Alternatively, as you appear to be on a fixed income, your pension, and assuming that you don't intend to work in the current tax year, you could make a clam for an in year tax repayment using a form P50. HMRC will calculate your tax position now and repay any excess tax. Read about in year tax repayments here.
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