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Personal Savings Allowance (PSA) & Redundancy

Practical Issues
paulatscafell
Posts: 7
Joined: June 1st, 2018, 6:55 am

Personal Savings Allowance (PSA) & Redundancy

#220211

Postby paulatscafell » May 8th, 2019, 4:27 pm

Hi all,

I hope someone can help with a query I have. I have recently taken voluntary redundancy, left employment at the end of March with redundancy paid at the end of April. Other than the redundancy pay, the only other income I expect this tax year are non ISA interest payments between £500-£1,000 and up to £500 in non ISA dividend payments. My redundancy pay was approximately £70,000 with £30,000 being tax free, leaving £40,000 taxable. Does the £30,000 tax free redundancy pay get included in the adjusted net income calculation and hence determine whether I am a basic rate tax payer with a £1,000 PSA or a higher rate tax payer with a £500 PSA? Many thanks.

Regards
Paul

PinkDalek
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Re: Personal Savings Allowance (PSA) & Redundancy

#220221

Postby PinkDalek » May 8th, 2019, 5:34 pm

paulatscafell wrote:... Does the £30,000 tax free redundancy pay get included in the adjusted net income calculation and hence determine whether I am a basic rate tax payer with a £1,000 PSA or a higher rate tax payer with a £500 PSA? ...


Adjusted net income is based on your income subject to Income Tax such as outlined here https://www.gov.uk/guidance/adjusted-net-income (which you may have seen). Assuming the £30,000 is exempt it should not impact on your figures.

Here's a couple of random links which probably confirm:

https://www.taxationweb.co.uk/forum/red ... 42618.html
https://www.accountingweb.co.uk/any-ans ... net-income

BrummieDave
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Re: Personal Savings Allowance (PSA) & Redundancy

#220230

Postby BrummieDave » May 8th, 2019, 6:38 pm

PinkDalek wrote:
paulatscafell wrote:... Does the £30,000 tax free redundancy pay get included in the adjusted net income calculation and hence determine whether I am a basic rate tax payer with a £1,000 PSA or a higher rate tax payer with a £500 PSA? ...


Adjusted net income is based on your income subject to Income Tax such as outlined here https://www.gov.uk/guidance/adjusted-net-income (which you may have seen). Assuming the £30,000 is exempt it should not impact on your figures.

Here's a couple of random links which probably confirm:

https://www.taxationweb.co.uk/forum/red ... 42618.html
https://www.accountingweb.co.uk/any-ans ... net-income


To add to what PD has already posted, your P45 will show a figure for 'Total Pay to Date' net of the £30,000 tax free amount, and the associated 'Total tax to date' showing the tax you have paid.

You should however also receive a final payslip that in addition to showing your total taxable earnings (as per P45), will also show 'Non Taxable Earnings' of £30,000 which your employer will have paid directly to you.

In other words, HMRC will not know, nor have any interest in, the fact that you have been made redundant and paid £30,000 tax free. They are only interested in your taxable earnings, and the amount of tax you've paid against this figure.

As an aside, this vagary of the way in which HMRC works, only collecting data about taxable earnings, is why the figures you sometimes hear in the media about the top 1% of earners account for 10% of total pay (or any other such stat about medians, averages etc.) is all poppycock. The only data HMRC collects, and which is harvested for such reporting purposes, is related to taxable income. So non-doms, ISAs, interest payments below tax thresholds, dividend income below tax thresholds, redundancy, offshore, tax avoidance, and a whole host of other income streams are currently not recorded anywhere. Obviously the higher up the earning stack you go, the more likely you are to have such non-taxable incomes, hence my use of the top 1% statistic above. I went to a fascinating seminar on this last week the abstract of which may interest some readers: https://www.birmingham.ac.uk/research/c ... lions.aspx

paulatscafell
Posts: 7
Joined: June 1st, 2018, 6:55 am

Re: Personal Savings Allowance (PSA) & Redundancy

#220419

Postby paulatscafell » May 9th, 2019, 1:12 pm

Thanks for your responses and clearing up my confusion PinkDalek and BrummieDave. My P45 was issued last tax year due to my employment ending 31st March 2019, before the redundancy payment which was paid to me 29th April 2019. I do not have a P45 covering the redundancy payment but I do have a payslip covering the redundancy pay which does show the taxable amount being £30K less than the total redundancy pay.


Regards
Paul


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