Redundancy

Insiderz

I've a specific question regarding taxation on payments that are received under a redundancy situation.

Understand Statutory redundancy payments are tax free.
I believe payments in respect of Notice period and Holidays due are taxed, but at what rate? Is it ran through normal payroll?

What about an ex-gratia payment? Say €15k. How is this taxed? Are there any allowances considering its a redundancy?

Thanks for your help. I'm facing this right now and not good on taxation matters.

sillysocks

I think the holidays wil be done through normal payroll. You may get fleeced o tax on those if you have a lot, but if you don't have another job straightaway you might be able to claim some tax back.

Regarding the ex gratia, there is a tax free basic exemption off 10,165 plus 765 for every year you've worked.
There is also an increased exemption of 10,000 available if you waive your right to a pension lump sum in the future (assuming you are in a pension scheme).

Insiderz

Thank you sillysocks, much appreciated.

I read that also on the revenue.ie site, just wanted a second opinion as I asked two people and they didn't know of the exemption and I was concerned that I may have interpreted it incorrectly.

When paying a sum above statutory, does the company have to specifically state the split, so final payment detailed as statutory + notice + holidays + ex-gratia ?

sillysocks

Yes it should all be detailed. Well I got it recently and it was. The statutory is tax free, holidays and notice pay would go through normal payroll.

The exemption definitely does exist. I availed of it recently. It's a personal choice though whether to avail if it or not. It might be an idea to ask your employer to allow you see someone like an accountant who's expert in the area. That's what my employer did - they sent them my details first and I then had a 20 min meeting with them where they had all my options for tax, top slicing etc on one sheet where it was very easy to compare the monetary difference between the options.

smcgiff

If it's your first time getting redundancy it's likely to be fully exempt. Each case is different, your company should provide the details of your specific case.

Larry Wildman

Statutory redundancy is exempt from tax.

Amounts that you're contractually entitled to (e.g. holiday pay, salary in lieu of notice, etc) are taxable.

An ex gratia payment (i.e. a payment that you're not entitled to and that the company is making out of the goodness of its heart) may be exempt or partially exempt as a result of one of three reliefs:

- Basic Exemption of €10,165 plus €765 per year of service.

- Increased exemption of €10,000 which can in certain circumstances be added to the Basic Exemption.

- The SCSB which tends to favour high earners with long service;
(A x B/15) - C where:
A = Average remuneration for last 36 mth
B = Complete years of service
C = NPV of tax free pension lump sum

Best to have a quick chat with a competent tax advisor (AITI / CTA).

merryberry

Can anyone confirm the following for me? I have been offered voluntary redundancy at work but very lucky to have found a job with another company elsewhere. I am thinking of applying for VR so let’s assume that I am accepted into voluntary redundancy scheme by my current employer. I understand that it is taxed but I’m trying to work out how much tax I will pay on the VR amount which I am told is being offered at the statutory rate i.e. €6180 in my case.

My gross salary is €698.75pw so if I’m paid up to week 43 that’s €30,036 gross. Add SVR of €6180 and I get €36,180. Tax this as follows:
€32800 @ 20% = €6,560
€3380 @ 41% = €1,386
Total tax €7,946

So the tax on the VR is as follows:

€2,800 @ 20% = €560
€3,380 @ 41% = €1,386
Total tax on VR = €1,945

I haven’t factored in tax credits but area my calculations above correct or am I way off.

Larry Wildman

merryberry wrote: »

Can anyone confirm the following for me? I have been offered voluntary redundancy at work but very lucky to have found a job with another company elsewhere. I am thinking of applying for VR so let’s assume that I am accepted into voluntary redundancy scheme by my current employer. I understand that it is taxed but I’m trying to work out how much tax I will pay on the VR amount which I am told is being offered at the statutory rate i.e. €6180 in my case.

My gross salary is €698.75pw so if I’m paid up to week 43 that’s €30,036 gross. Add SVR of €6180 and I get €36,180. Tax this as follows:
€32800 @ 20% = €6,560
€3380 @ 41% = €1,386
Total tax €7,946

So the tax on the VR is as follows:

€2,800 @ 20% = €560
€3,380 @ 41% = €1,386
Total tax on VR = €1,945

I haven’t factored in tax credits but area my calculations above correct or am I way off.

You're way off. Statutory redundancy is tax free (with a €600 cap). But if your €6k is statutory redundancy it should be entirely tax free.

merryberry

Larry Wildman wrote: »

You're way off. Statutory redundancy is tax free (with a €600 cap). But if your €6k is statutory redundancy it should be entirely tax free.

Thanks larry. Just to clarify...im being offered vol red but no more than the statutory rate which I worked out to b €6180. I understand that in lets say a compulsory redundancy situation that the statutory amount would b tax free up to a point. I thought that the statutory amount was taxed in a voluntary redundancy situation???

Larry Wildman

merryberry wrote: »

Thanks larry. Just to clarify...im being offered vol red but no more than the statutory rate which I worked out to b €6180. I understand that in lets say a compulsory redundancy situation that the statutory amount would b tax free up to a point. I thought that the statutory amount was taxed in a voluntary redundancy situation???

No, it's the fact that it's a redundancy that's key. Voluntary or compulsory - It doesn't matter. Statutory redundancy is always tax free. All of your payment will be exempt.

Intuitively it makes sense. A voluntary redundancy is just a situtation where the business is saying "we need to make someone redundant - Will anyone take one for the team?".

Best of luck for the future.

merryberry

Larry Wildman wrote: »

No, it's the fact that it's a redundancy that's key. Voluntary or compulsory - It doesn't matter. Statutory redundancy is always tax free. All of your payment will be exempt.

Intuitively it makes sense. A voluntary redundancy is just a situtation where the business is saying "we need to make someone redundant - Will anyone take one for the team?".

Best of luck for the future.

U've been very helpful. Thank you