Holidays and Pay in Lieu of Notice

[caledfwlch]

Hello!

 

Just wanted to ask a quick question. Just been made redundant with under a years service. Due to my contract (notice period of 4 weeks whilst most there only have a weeks!) They are paying me that 4 weeks in lieu of notice. There is no contractual provision in my contract or company handbook for pay in lieu of notice, so as confirmed in their letter to me, I will not be paying tax or NI on this.

 

But, would I still accrue the holidays I would normally have accrued during this 4 weeks? a web search reveals competing answers.

 

As I say there is no contractual provision for Lieu pay, so those holidays would be a benefit I would have gained had I worked that 4 weeks notice.

 

Also, Council Tax attachments of earnings - will they just take their normal bite of the pie, added up to 4 weeks worth or will they try and grab even more of my notice pay?

[BeauBrummie]

Hi caledfwlch,

 

Something is wrong here as you will not be entitled to "redundancy pay" with less than 2 years service. Redundancy pay is not subject to the normal Tax and NI deductions under 30K.

 

However pay in lieu of notice is just normal pay and should be treated as such as far as the taxman is concerned. You are correct in your assumption that you should accrue holiday pay until the end of your notice period. At the end of the day the 4 weeks notice will only attract a further 2.33 days of holiday at statutory minimum entitlement so the cash amounts are relativley small in terms of your notice period.

 

Therefore having said that notice pay should be treated as normal it would I am afraid also be subject to deductions from an AEO for Council Tax, and yes it will be a higher figure because the AEO is based on a percentage of your earnings after reaching a certain threshold.

 

Beau

[caledfwlch]

Hi caledfwlch,

 

Something is wrong here as you will not be entitled to "redundancy pay" with less than 2 years service. Redundancy pay is not subject to the normal Tax and NI deductions under 30K.

 

However pay in lieu of notice is just normal pay and should be treated as such as far as the taxman is concerned. You are correct in your assumption that you should accrue holiday pay until the end of your notice period. At the end of the day the 4 weeks notice will only attract a further 2.33 days of holiday at statutory minimum entitlement so the cash amounts are relativley small in terms of your notice period.

 

Therefore having said that notice pay should be treated as normal it would I am afraid also be subject to deductions from an AEO for Council Tax, and yes it will be a higher figure because the AEO is based on a percentage of your earnings after reaching a certain threshold.

 

Beau

 

Everything I have read suggests that Tax and NI cannot be applied to payment in lieu of notice if there is no mention of such in my contract - a previous employer I was made redundant from did have lieu of notice in my contract and I paid tax on it.

 

I also have a letter from the employer telling me my payment will not be subject to tax and NI.

 

They gave me a pay rise a few months after starting and made me sign a new contract for it, in which I had to give them 4 weeks notice, and they would give me 4 weeks, but there is no mention at all of pay in lieu of notice. The HR head actually thought I was only entitled to a weeks notice until I brandished my nice shiny contract!

 

The letter specifically says "Please find attached a statement of termination monies due to you. This sum is not subject to deductions in respect of income tax or national insurance contributions..." It also repeats the No NI/TAX statement in a seperate sheet listing my notice pay.

 

I thought the Council Tax might take a bit more due to the percentage calculations, I was just worried there might be an obligation on the employer to deduct the entire arrears from my last pay.

[BeauBrummie]

Hi caledfwlch,

 

If it is not subject to the normal Tax & NI then what sort of a payment is it? The ONLY payments that should not be taxed are as I have stated in my first post redundancy under £30K or expenses suffered by the employee for business purposes.

 

Your HR dept is correct in saying that for under 2 years service the Statutory Minimum notice is 1 week unless otherwise stated but even if your local terms state that you will receive 4 weeks notice I see no reason for it not to be subject to the normal tax rules.

 

If on your payslip they actually state that it is "redundancy pay" then that will be ok ---in my opinion if it is any other description then it should be subject to tax.

 

Beau

[caledfwlch]

From what I can gather by research, because my contract has no provision for payment in lieu of notice, then they are effectively committing a breach of contract. And the court of appeal decided that in these cases the payment is not taxable.

Pay in lieu of notice liable to tax

"Where, however, there is no provision in the employment contract to make a payment in lieu of notice a payment made in lieu of notice as compensation or damages for breach of the contract of employment will not be taxable as long as it is less than £30,000. This decision is of great significance when negotiating termination packages and will mean that employees who have pay in lieu of notice clauses in their contracts will need to be advised of their tax liability as will the employers concerned. "

 

If I understand it correctly, if its in your contract then its a "benefit of employment"

 

I hope that even if they are wrong, then its them who would be liable for the tax, or I would at least have a claim against them.

 

This payment is also not coming with my last weekly pay - it is coming seperately next week.

[BeauBrummie]

I hope that even if they are wrong, then its them who would be liable for the tax, or I would at least have a claim against them.

 

Yes they would be subject to the Tax and NI and also Company NI should HMRC think that it is wrong, may I suggest that you get a written breakdown of the final payment showing a breakdown of the items that are subject to tax and what is not.

 

If you are required to prove this payment in the future to HMRC that would then be your evidence.

 

Beau

[caledfwlch]

Yes they would be subject to the Tax and NI and also Company NI should HMRC think that it is wrong, may I suggest that you get a written breakdown of the final payment showing a breakdown of the items that are subject to tax and what is not.

 

If you are required to prove this payment in the future to HMRC that would then be your evidence.

 

Beau

 

I have this I think.

 

Its a second sheet on my redundancy letter.

 

States Redundancy payments = Nil

Notice = the equivelent of 4 weeks gross

 

It seems HMRC can be a bit snarky over working/not working notice period, but in this case I had no choice - they did not even let me come in for my next shift to tell me, they came knocking on my door at home.

 

I assume (hope) they know what they are doing as they are a very large multinational company and have been busy making a couple hundred people redundant since last summer.

 

I suspect they also thought it would be nice and cheap to get rid of me - not long enough service for redundancy payments and they thought a weeks notice.... glad I had my contract easily to hand!