Self Assessment - redundancy / redundancy sacrifice

Hi. Apologies for the length of this thread! I will be made redundant on 2 April 2023 obviously just before the end of the 2022/23 tax year and will then take early retirement. I have a DB and DC pension with my employer. I plan to use all of my DC pension as my 25% tax free lump sum. I expect to receive the tax free the lump sum in May 2023 and start receiving my DB pension from June 2023, i.e. both in the 2023/24 tax year. I also expect to receive my severance payment in May/June 2023, again, in the 2023/2024 tax year. Question – am I correct to assume that I will be considered to have been taxed on the redundancy / severance payment in the year that I receive it even though I was made redundant in an earlier tax year, i.e., it will be considered 2023/24 income? The first £30,000 of my severance will obviously be paid tax free as it doesn’t qualify as earnings for income tax purposes. Question – as the first £30,000 is not treated as taxable income am I correct in saying it does not need to be included/declared on my self-assessment for 2023/24 or must it be recorded somewhere? Question – if there’s an amount of severance pay over/above the £30,000 figure where must that be recorded? Redundancy Sacrifice - my employer has given me the option to sacrifice part of my severance payment into my Defined Contribution pension scheme. I understand that this will be treated as an additional employer contribution which will be tested against the pensions Annual Allowance and Lifetime Allowance. I hope to sacrifice as much as possible of the severance over and above the first £30k tax free element. I expect to sacrifice approx. £45k. Question - as my employer is offering/handling this should may I assume the correct tax relief will be applied/received automatically or must I do something? I will have unused Annual Allowance for the 2022/2023 tax year of approx. £15k and a similar unused sum for the three previous tax years enabling me to leverage the carry forward rules do this/cover the sum I wish to sacrifice/pay-in over the annual £40k limit. On paper it may therefore appear to my pension provider that I have exceeded the £40k annual allowance for 2022/2023 but I will not have due to the carry forward rules. Question - in the event I receive a Pension Savings Statement from my pension provider saying that I have exceeded my annual DC allowance for 2022/23 (when I won’t have due to the carry forward rules) should I simply ignore it or should my employer/pension provider realise that I had unused allowances and therefore not issue a PSS? Question - on any self-assessment for 2022/23 or 2023/24 am I correct in saying that I must therefore respond as if/on the basis that I have not exceeded the Annual Allowance? Question – does the 25% tax free lump sum that I’ll receive in tax year 2023/24 from my DC pension need to be declared anywhere? Thank you!

Hi,

HMRC taxes income on the arisings basis. This means that the tax year in which you receive your redundancy payment, is the tax year it will be taxable in.  

On SA101, you would enter the amount of redundancy payment above £30000.00 that your received. You can carry forward any unused relief from the previous 3 tax years and add this to your £40000.00 threshold, to increase it. If your pension payment still exceeds this sum, then you will need to declare the excess on SA101. Where your revised threshold covers your pension payment you do not need to show this on the tax return. The tax free lump sum does not need to be delcared on a tax return.

Thank you.

Thank you. May I just clarify one thing regarding completion of the SA101 - so I enter the amount of redudancy payment over the £30k threshhold in box 5. But do I need to enter £30,000, ie. the tax free element in box 9 or is that just for use where the redundancy payment is below £30k. Thank you

Hi,
 

If you have had a redundancy payment up to £30,000, after any post-employment notice pay has been taken off, and against which your employer has allowed an exemption on, put the total amount that you received in box 9. If your payment after any post-employment notice pay has been taken off, is more than the £30,000 limit, you’ll have to pay tax on the difference. Put the amount over £30,000 in box 5, any tax taken off in box 6 and the £30,000 limit in box 9  . Thank you.