V/R warning

[Chilli pepper]

Due to the delay in agreement those taking VR need to be careful that the terms don't take you into the 40 p/c tax unless payment can be delayed could lose you a lot of money could do with help and advise from union ! .

[baldrick]

Although the first £30k of redundancy payment is tax free, anyone getting the maximum 104 weeks VR will go over the lower tax threshold which is about £42k I think. So you would be paying 40% tax on anything over that.
Also any earnings or pension is included in the total for tax purposes.
When I took VR the VR payment with my earnings for that tax year plus my pension put me into the higher tax bracket. I got a temp Xmas job that year for £7.50 per hour and found that I was paying 40% tax on that.

[Chilli pepper]

Correct could be as much as £8,000 tax bill thanks cwu ! Been better delayed until April

[baldrick]

To be fair though, from what I read in the draft agreement, the CWU have negotiated a Pay in lieu of notice (PILON) payment, which we don't get in RM now, apart from managers that is. So that's 12 weeks pay for nothing.
I suppose that you could work your notice instead, and if you are due 12 weeks notice that would take you into the new tax year.

[Budfrog]

This is an area where CWU/CMA and RM should be facilitating tax friendly ways for staff to take their VR.... AND TELLING THEM THE TAX IMPLICATIONS OF LEAVING AT DIFFERENT TIMES OF THE YEAR.

It is a fact that the best time to take your VR payment is at the start of the tax year ie April ... I say payment because there is nothing illegal (this has been checked with the tax office) with the VR payment date being different from the last day of service. In fact in the past RM have done precisely this for ..... senior managers ;) The amount of tax saved will depend on how close to the 40% tax threshold you are but it is a significant amount of money.

If a request for delayed payment or a later last date of service is made it needs to be done before VR (or EVR) is accepted ... and even though a precedent has been set by the aforementioned 'senior managers' pressure will be put on the individual employee to accept RM's terms and VR payment date. This coercion will be in the form of a possible withdrawal of the VR offer and the often used phrase 'These Terms Cannot Be Guaranteed In The Future' ... simple blackmail to you and me but just another weapon in RM's toolset when it comes to getting what they want. Most people look at the ££££s and by comparison to most other companies the terms are currently attractive but you do have to ask yourself the question "Why are Royal Mail so keen for their soon to be Ex-Employees to pay so much unnecessary tax' (I'm pretty sure Moya wouldn't).

[RobertT]

There is always the option of putting an amount over the £30k tax free limit into a pension and not pay any additional tax at all. That could in theory be done via an RM AVC(not too sure if it’s an actual option in reality) or you pay tax initially and then put what’s left into a personal pension or similar and effectively receive the tax back via tax relief.

The new pension rules coming into effect in April 2015 will allow people to drawdown their defined contribution pension pots from age 55 potentially all tax free, allowing for the personal tax allowance. So not only could you avoid a 40% tax bill on some of a VR payment but you could in theory avoid paying any tax on it at all regardless of when in the tax year you take it.

[genesis]

Although the first £30k of redundancy payment is tax free, anyone getting the maximum 104 weeks VR will go over the lower tax threshold which is about £42k I think. So you would be paying 40% tax on anything over that.
Also any earnings or pension is included in the total for tax purposes.
When I took VR the VR payment with my earnings for that tax year plus my pension put me into the higher tax bracket. I got a temp Xmas job that year for £7.50 per hour and found that I was paying 40% tax on that.

I do not agree ,if the 30k is taxfree you are paying tax on 12000 plus ,then your wages which is around 21000 plus o/t this would probably less than 42000

[Budfrog]

Although the first £30k of redundancy payment is tax free, anyone getting the maximum 104 weeks VR will go over the lower tax threshold which is about £42k I think. So you would be paying 40% tax on anything over that.
Also any earnings or pension is included in the total for tax purposes.
When I took VR the VR payment with my earnings for that tax year plus my pension put me into the higher tax bracket. I got a temp Xmas job that year for £7.50 per hour and found that I was paying 40% tax on that.

I do not agree ,if the 30k is taxfree you are paying tax on 12000 plus ,then your wages which is around 21000 plus o/t this would probably less than 42000

Inner London OPGs would be on far more than £21k once you add on allowances and any ED. Even in the regions a CSS or MC Mech operator on nights is probably pushing £30k.

[baldrick]

Although the first £30k of redundancy payment is tax free, anyone getting the maximum 104 weeks VR will go over the lower tax threshold which is about £42k I think. So you would be paying 40% tax on anything over that.
Also any earnings or pension is included in the total for tax purposes.
When I took VR the VR payment with my earnings for that tax year plus my pension put me into the higher tax bracket. I got a temp Xmas job that year for £7.50 per hour and found that I was paying 40% tax on that.

I do not agree ,if the 30k is taxfree you are paying tax on 12000 plus ,then your wages which is around 21000 plus o/t this would probably less than 42000

Inner London OPGs would be on far more than £21k once you add on allowances and any ED. Even in the regions a CSS or MC Mech operator on nights is probably pushing £30k.

ED isn't counted for pension or VR payment calculations, but an Inner London OPG would be on about £24k pa with Inner London Weighting.
I got the ex-PHG £1k pa pensionable allowance and I went on late shift for the last 6 months before I took VR, so that bumped up my pensionable pay by another £1,200.
The extra late shift allowance bumped up my VR payment by £4,800, but I had to pay 40% tax on that so I don't know if it was worth going on late shift.

[Chilli pepper]

Crew member citv probably 104 weeks VR =£50,000 £30,000 tax free wages so far £20,000 by the time everything goes through will take it over £42,000 then into 40pc tax bracket unless payment can be deferred as has been suggested if you go into the higher tax bracket are you taxed on just the amount over £42,000 ?

[baldrick]

you go into the higher tax bracket are you taxed on just the amount over £42,000 ?

You are not taxed on VR payment up to £30k. Anything above that is taxed at the appropriate rate, so up to £42k (in the tax year, including pay and pension) you will pay 20% tax. Anything over £42k you will be paying 40%.

[Budfrog]

ED isn't counted for pension or VR payment calculations

I know ... but ED contributes towards your taxable income for the year meaning you are more like to hit the 40% tax bracket (by adding any VR over £30k to your earnings) particularly if you leave towards the end of the financial year.

Besides if your payment is made at the beginning of the tax year you can add your tax free allowance to the £30k bumping it up to £40k and then there is the 20% for the next £31,865.

[baldrick]

Oh ok budfrog, I understand what you are saying now.

[baldrick]

Correct could be as much as £8,000 tax bill thanks cwu ! Been better delayed until April

But even if VR payment was made in first week of new tax year, you would be paying 20% tax on the amount between £30k-£42k, and 40% on anything over £42k.
Also I believe you have said that you are already taking your RM pension, so that would then be taxed at 40% for the rest of the tax year.
And if you were to get another job, the pay from that would be taxed at 40% for the rest of the tax year.
The Government is going to get it's money one way or another.

[Budfrog]

This may help (taken from http://www.taxguideforstudents.org.uk/w ... y-payments" onclick="window.open(this.href);return false;)

Examples
Tom – redundancy paid before and after leaving job

Tom was made redundant from his job on 6 April 2014. He received a redundancy payment of £55,000 with his final pay packet on that day. The first £30,000 of the redundancy payment is tax-free, so Tom was taxed using his normal tax code on £25,000 of the redundancy payment. The redundancy payment, less tax, was paid to Tom with his final wages, which were taxed using his normal tax code. He then received his form P45.

Because of the way that relief for the personal allowance is given through the payroll, if Tom does not work for the rest of the year, or only has a small income, such as JSA, he may find that he can claim a tax refund for the year of redundancy because of unused personal allowance.

If instead the redundancy payment of £55,000 was not actually paid to Tom until 1 May 2014, after his form P45 had been issued, his employer would have to apply the 0T code. As above only £25,000 of the payment is taxable. Under code 0T, tax will be due as follows:

on £2,675 at 20% is £531
on £9,845 at 40% is £3,938
on £12,500 at 45% is £5,625
so Tom will get £44,906 (55,000 - 531 - 3,938 - 5,625).

As Tom has paid estimated tax on the taxable part of the redundancy payment, he may have overpaid tax in 2014/15 and may be able to reclaim some tax from HMRC. Contact HMRC if you think this applies to you.