Can an employer use only basic exemptions for redundancy taxation calculations?

D

Dave Vanian

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Greetings all.

I'm trying to help someone who is being made redundant. Employer is paying statutory + ex-gratia and has been quoted a figure for a tax deduction from the ex-gratia. The employer has said that only basic exemptions are applied by the company for all redundancies.

I have a feeling that the SCSB calculation (without waiving the right to a tax-free pension lump sum) may be higher than the basic exemption but I'll need to get figures on the pension to work that out.

My questions are: -

  • Is the employer allowed to use only the basic exemption?
  • If it turns out that the SCSB calculation would have resulted in lower taxation, can the individual reclaim overpaid tax and if so, how o they go about this?
  • In calculating SCSB I know that three years' income should be used. Are P60 figures from 2019, 2018 and 2017 acceptable for this, bearing in mind that we're now more than halfway through 2020?
  • Pension scheme is a DB scheme and I'm waiting to find out what the deferred lump sum will be at retirement. Do I use this figure in the SCSB calculations or do I have to adjust it for future inflation between now and retirement?
Thanks in advance for any help.

DV
 
- It’s not really ‘are they allowed’; it’s just incompetence not to use it if it gives the better result
- Yes; contact Revenue basically or submit one’s tax return
- It’s not three full years; it’s the 36 months right up to leaving and includes all pay
- The pension company need to give you the present value of the lump sum using a discount rate (they’ll do that).
 
Many thanks Gordon.

The more I look at this, the more I don't like it. This is part of a round of redundancies at this employer involving a significant number of people. HR are applying only the basic exemption across the board. I suspect that SCSB might result in lower or possibly no tax. I won't know until I have the inputs. I can run the numbers and if so, tell my guy to claim back the excess tax from Revenue. I've a suspicion that a large percentage of the affected staff wouldn't have a clue about SCSB or anything like it. The redundancy offer documentation doesn't even include a simple line like "There may be another method of calculating the tax on your lump sum. Seek professional advice if you want." So my guess is that lots of people will end up paying more tax than they need on their redundancy and won't know that they could claim it back.

This is not my day job. Maybe this is standard practice. Doesn't seem to be too much in the line of protection for people about to lose their jobs.
 
It seems bizarre as there’s no cost to them. In fact, kind of the opposite, in that they can “sell” a more favourable after-tax outcome to people more easily.

Without identifying yourself, how long are you there, what’s your total pay (including everything) for the last 36 months, how old are you, and how much is in your pension fund?
 
Thanks Gordon. Not for myself - helping someone out if I can. Currently trying to track down last 36 months' pay as distinct from last 3 P60 figures. Pension scheme is Defined Benefit and provides a lump sum only at retirement. At your suggestion we have asked the administrators to provide a net present value.

It seems lazy in the extreme to me. I would assume that anyone working in HR would have a simple spreadsheet or app that could run all three redundancy taxation calculations in seconds once the correct inputs were available.
 
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