The Lemon Fool

As previously stated on here
, I'm taking voluntary redundancy at the end of March , and in the agreement I signed with the company ,it was agreed that the redundancy would be paid in the April Payroll run on 25th April 2019 ( its around £49k, so there's tax to pay on £19k)

I've just gone online to check my NI Contributions on the .gov.uk website , and I notice that it states my taxable income for March is over £22k - this suggests to me that I've been paid my redundancy in March which has pushed me into the 40% tax band , and also attracted income tax on savings interest

Now my first port of call is with my HR department in the morning to see what the hells going on, but assuming , they are unable/ unwilling to do anything ,is there a way I can reduce my income tax for this year to get it below the 40% tax threshold - First thoughts are to stick a load of it into a pension scheme , to reduce my tax liability then draw it out over the next few years ,but is there something else i Should be doing ?

If it helps , my income for the year is showing as £55,755,

Are you able to throw part of your redundancy payment into your pension, in order to remove it from liability to income tax?

"Are you able to throw part of your redundancy payment into your pension, in order to remove it from liability to income tax?"

yes thats going to have to be the line i take , but the guy looking after my private pension is checking if there's enough time between 25th March and 5th April to get it into the pension ( cant see why not- its 2 weeks)

other option is to stick it into my present work pension , looks like I can put extra contributions of cash into that, L&G are saying they need about 5 days

just pees me off I'm going to have the hassle of sorting out getting the extra tax back on the pension contribution , because of HR's mistake

steelman99 wrote:HR's mistake

The company is in breach of the signed agreement. A date was specified for performance and they, by jumping the gun, have caused you problems. Get heavy with them (unless the phrasing of the agreement was along the lines that the April payroll run was the latest date rather than the precise date).

Cheers!

steelman99 wrote:"Are you able to throw part of your redundancy payment into your pension, in order to remove it from liability to income tax?"

yes thats going to have to be the line i take , but the guy looking after my private pension is checking if there's enough time between 25th March and 5th April to get it into the pension ( cant see why not- its 2 weeks)

other option is to stick it into my present work pension , looks like I can put extra contributions of cash into that, L&G are saying they need about 5 days

just pees me off I'm going to have the hassle of sorting out getting the extra tax back on the pension contribution , because of HR's mistake

Yes, get it into your work pension if that is easier to do.

I took an ER/VR package many years ago (and retired early). I had hesitated from taking the deal because the redundancy payment was greater than £30K and would therefore have attracted income tax at my marginal rate. However, when I took advise on the situation, it was pointed out to me that I could "throw" the excess above the £30K into my (employer's) pension plan, thus avoiding tax on it. I then took my pension (early) and was able to take the usual 25% tax free cash lump sum out of the pension.

That is something else you could discuss with your HR people when you see them about the dates mix up.

steelman99 wrote:"Are you able to throw part of your redundancy payment into your pension, in order to remove it from liability to income tax?"

yes thats going to have to be the line i take , but the guy looking after my private pension is checking if there's enough time between 25th March and 5th April to get it into the pension ( cant see why not- its 2 weeks)

other option is to stick it into my present work pension , looks like I can put extra contributions of cash into that, L&G are saying they need about 5 days

just pees me off I'm going to have the hassle of sorting out getting the extra tax back on the pension contribution , because of HR's mistake

Assuming you have a L&G stakeholder pension (personal or group), you can make a lump sum contribution by post with a cheque.
Tell them to put invest it in the L&G Cash Fund.
Then sign up for their online service (if you haven't done so already), and then do a funds switch from the Cash fund to <insert fund name> every month (to drip feed from the cash fund into something likely to give a return), or if you like to bet the farm, pick your time and switch the whole lot.

The reasoning:
Your priority is to get the money into the pension fund ASAP, the "where to invest" can be done at your leisure.
The cash fund will either grow vewwy slowly (to quote Elmer Fudd), or in the worst case, grow by 0%.
Even if you had the time to consider "where to invest" the B-word adds a degree of uncertainty, which you may or may not be happy with.

Also note that if L&G have acknowledged receipt of your contribution before April 5th, then the contribution is in the bag.

In my opinion/experience, you have enough time to get a contribution applied to a L&G Stakeholder pension if you act promptly.
Looking back at my records, I have a cheque dated 28th March 2009 (Sat), which was probably received on the Monday or Tuesday which was cashed by L&G/applied to my account on the 3rd of April 2009 (Fri), and the investments bought on the 6th (Mon).
I would hope that L&G have improved their administration since them.

Another piece of advice - Phone them up, Never use their online messaging service - they don't respond quickly, and when they do respond they've usually answer a question you never asked, or you already knew the answer to.

PochiSoldi

steelman99 wrote:As previously stated on here
, I'm taking voluntary redundancy at the end of March , and in the agreement I signed with the company ,it was agreed that the redundancy would be paid in the April Payroll run on 25th April 2019 ( its around £49k, so there's tax to pay on £19k)

I've just gone online to check my NI Contributions on the .gov.uk website , and I notice that it states my taxable income for March is over £22k - this suggests to me that I've been paid my redundancy in March which has pushed me into the 40% tax band , and also attracted income tax on savings interest

Now my first port of call is with my HR department in the morning to see what the hells going on, but assuming , they are unable/ unwilling to do anything ,is there a way I can reduce my income tax for this year to get it below the 40% tax threshold - First thoughts are to stick a load of it into a pension scheme , to reduce my tax liability then draw it out over the next few years ,but is there something else i Should be doing ?

If it helps , my income for the year is showing as £55,755,

I believe it would be a simple enough issue for payroll to fix.

https://www.gov.uk/payroll-errors/corre ... fps-or-eps

They simply correct the figure, and re-run the payroll software for the month, which will update HMRC.

Yes, I agree with Paulnumbers. Your first port of call should surely be your HR/payroll department, asking them to correct the situation asap, and whilst speaking to them, advise you on the possibility of any of the other permutations or ideas that you may have in mind.

paulnumbers wrote:
I believe it would be a simple enough issue for payroll to fix.

https://www.gov.uk/payroll-errors/corre ... fps-or-eps

They simply correct the figure, and re-run the payroll software for the month, which will update HMRC.

Depends if the company beancounters need to spend the money before the end of the quarter or not.

Thanks to all for their advice
I've got pensions with L&G & OMW , both say it should be possible to get the money into a pension , but they cant gaurentee as its so close to the 5th April

Spoke to HR today ,first reply was we cant do anything , but when I put their letter on the table stating the redundancy payment would be paid on the 25th April , they said they would see what can be done and get back to me today - as expected - no reply


Looks like i going to have to dig into my savings and send £10k to my pension as an insurance policy and hope it gets there on time

if in the meantime work sorts something and re runs payroll it means I've moved money that I would not of put into my pension for no reason

As the date of payment is in black and white for 25th April - do I have any claim against the company if its paid in March?

steelman99 wrote:As the date of payment is in black and white for 25th April - do I have any claim against the company if its paid in March?

From a legal point of view, you need to be able to quantify your loss.
If you have no loss, then you have no case.
Note that the fact that you might have turned liquid/spendable now cash into an spendable later pension holding doesn't amount to a financial loss.
My gut feeling is that unless you had some kind of definite plan to pay down existing debt, any demonstrable loss is probably minimal.

It might be worth some sabre rattling to see if you can get something out of them, but you are dealing with the hatchet crew, who are used to dealing with people trying to get the last dime out of them, so don't spend any money on solicitors etc, because it probably won't happen.

PochiSoldi

pochisoldi wrote:From a legal point of view, you need to be able to quantify your loss.

Isn't the loss simply the extra tax owing by virtue of being forced into the 40% bracket?

The loss is easily quantified

Redundancy Paid this year ,
£10k taxed at 20% = £2000
£9.5k taxed at 40% = £3,800
40% tax on 235 on interest on savings =£934

Total tax on redundancy pay above £30k & extra interest on savings = £6734


If its Paid next tax Year

Taxable redundancy is £19500 to take off next years tax free allowance , to make taxable redundancy to give taxable amount of £7k

£7k taxed at 20% = £1400

Difference is £5334 , so therefore my loss for their breach of a signed agreement is £5334

steelman99 wrote:The loss is easily quantified

Redundancy Paid this year ,
£10k taxed at 20% = £2000
£9.5k taxed at 40% = £3,800
40% tax on 235 on interest on savings =£934

Total tax on redundancy pay above £30k & extra interest on savings = £6734


If its Paid next tax Year

Taxable redundancy is £19500 to take off next years tax free allowance , to make taxable redundancy to give taxable amount of £7k

£7k taxed at 20% = £1400

Difference is £5334 , so therefore my loss for their breach of a signed agreement is £5334

Perhaps put that note on the table too.

steelman99 wrote:The loss is easily quantified

Redundancy Paid this year ,
£10k taxed at 20% = £2000
£9.5k taxed at 40% = £3,800
40% tax on 235 on interest on savings =£934

Total tax on redundancy pay above £30k & extra interest on savings = £6734


If its Paid next tax Year

Taxable redundancy is £19500 to take off next years tax free allowance , to make taxable redundancy to give taxable amount of £7k

£7k taxed at 20% = £1400

Difference is £5334 , so therefore my loss for their breach of a signed agreement is £5334

Looking at it legally,
That's not a realistic figure, given that you are in a position to mitigate your tax bill by paying money into your pension.

This means that your loss is actually the interest you have foregone on the £10k you were forced to put in your pension to avoid the 40% tax, less any growth on the money in the pension, all over a period of probably no more than 3 years.

Given the crap rates on offer at the moment, the loss would probably be somewhere in the order of £200 over 12 months, assuming you had your money somewhere paying 2% on £10k.

However looking at it from a human point of view, being able to tell a HR person that their forthcoming cockup has cost you over £5000 makes for good leverage if the HR people have any kind of soul.

steelman99 wrote:Spoke to HR today ,first reply was we cant do anything , but when I put their letter on the table stating the redundancy payment would be paid on the 25th April , they said they would see what can be done and get back to me today - as expected - no reply

Sounds like breach of contract.
Inform them you would like to return the payment and receive it next month as agreed. Advise them that you would prefer to deal with the issue amicably rather than put your solicitor onto it.

just to close this off , an agreement has been come to with HR, Subject to the appropriate paperwork been signed , and a confidentiality clause for some reason.
Anyway , I'm in the position I would of been , should the money of been paid in the agreed financial year . the payment will go into my bank account on the 8th April

Thanks to everyone for their comments