Taking a 'package' to leave a job and tax implications

J

JimBob81

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Hi all,
I work for a company where they are currently trying to clear out some staff and while there is no mass layoff or publicised voluntary redundancy I'm aware that there is a 'package' available for those who wish to depart. The package being 1 months notice + 12 weeks pay.
I'm working there just over 2 years. It's a toxic work environment, and this could be a good way out.

I'm never been in this situation before, so trying to understand how such a 'package' is dealt with from a tax perspective

1) Would such a 'package' to leave a job be deemed redundancy? What defines redundancy?

2) The 'package' would be worth approx €40-50k, but I'm confused with the Increased Exemption from Revenue with regards to the reference to waiving the Pension Scheme tax free lump. Being only 2yrs in the role, there is not a huge pot in the pension. I'm 43yrs old, so still expect to get another job and continue to build pension elsewhere after this. Can anyone help me understand this better?

Thanks,
Jim
 
It does sound like it would be redundancy.

Firstly, you need to understand how much of this is statutory (tax free) and ex gratia(potentially in scope for tax)

Pay in lieu of notice (PILON) is taxable as per normal salary
 
If the job (as distinct from the person) is to remain, then it’s not redundancy, voluntary or otherwise.

It’s more likely a severance agreement. It’s effectively a pay-off to secure your termination without the threat of subsequent claims of unfair dismissal or any other alleged breach of employment law. You will be asked to sign a waiver to this effect. It’s quite normal in these situations.

Payments of this nature are subject to particular tax breaks subject to a maximum of 200k over your working life. Others may have more detail on how this works in practice.

PILON is not an incentive if you’re still expected to work your notice. If you don’t have to work your notice, that’s a different matter.
 
Thanks for the replies.

Looks like this is happening, I'm waiting to see specific details from my employer.
What's the best source of advice - solicitor on employment law or accountant for the tax side? Both?
 
Your payroll department should be your first port of call. They should explain the mechanics of how they expect it to be taxed. You are entitled to 4 weeks redundancy pay (2 weeks per year) capped at 600 per week max. So your first 2400 is deemed tax free. Depending on our circumstances you will probably have the basic 10k exemption on the remaining amount of the 12 weeks pay. Btw, In order for the package to be worth 40-50k you would have to be on 160 to 200k a year. Your 4 weeks notice period is taxed as normal whether you work it or not.
 
Salvadore said:
Payments of this nature are subject to particular tax breaks subject to a maximum of 200k over your working life. Others may have more detail on how this works in practice.
Click to expand...

Reading the below indicates the 200k exemption relates to pensions, whereas this type of payment would follow under ex-gratia and be taxed accordingly.


JimBob81 said:
Hi all,
I work for a company where they are currently trying to clear out some staff and while there is no mass layoff or publicised voluntary redundancy I'm aware that there is a 'package' available for those who wish to depart. The package being 1 months notice + 12 weeks pay.
I'm working there just over 2 years. It's a toxic work environment, and this could be a good way out.

I'm never been in this situation before, so trying to understand how such a 'package' is dealt with from a tax perspective

1) Would such a 'package' to leave a job be deemed redundancy? What defines redundancy?

2) The 'package' would be worth approx €40-50k, but I'm confused with the Increased Exemption from Revenue with regards to the reference to waiving the Pension Scheme tax free lump. Being only 2yrs in the role, there is not a huge pot in the pension. I'm 43yrs old, so still expect to get another job and continue to build pension elsewhere after this. Can anyone help me understand this better?

Thanks,
Jim
Click to expand...

I am in a similar position, and found the reference to the pension confusing. My assumption is that it relates to only pension pot you have with your current employer. My understanding is you can either waive the right to a tax free lump sum or get the current net present value of the future tax free lump sum and that will be subtracted from the 10k additional exemption.
 
JimBob81 said:
The 'package' would be worth approx €40-50k, but I'm confused with the Increased Exemption from Revenue with regards to the reference to waiving the Pension Scheme tax free lump.
Click to expand...
The basic exemption for ex-gratia is 10k. You have a choice to select to take a further 10k exemption but you would waiver your rights to a lump sum from your pension at 65 (usually 25% of the pot). This is usually not a good idea as the amount later could, and should, be more than 10k. As pointed out, this only applies to the pension you have with that employer. As in your case you only have 2 years there may be a case for this but I would get proper advice on it as there may be some loophole/gotcha somewhere in the small print.
 
elcato said:
The basic exemption for ex-gratia is 10k. You have a choice to select to take a further 10k exemption but you would waiver your rights to a lump sum from your pension at 65 (usually 25% of the pot). This is usually not a good idea as the amount later could, and should, be more than 10k. As pointed out, this only applies to the pension you have with that employer. As in your case you only have 2 years there may be a case for this but I would get proper advice on it as there may be some loophole/gotcha somewhere in the small print.
Click to expand...
Is it default at 65 as you could take the pension at 50 right?
 
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