Question:

 

I wonder if you can offer any advice regarding the emails below.

Our client is suggesting that a 25k redundancy payment should be tax free.

Whilst I’m aware of a redundancy tax credit that can be claimed by the employee, this is a new one for me.

 

Can you shed any light?

 

Answer:

 

Rubbish, valid redundancy payments are subject to lump sum tax rates (without taking the earner levy out) they are not tax free.

 

But what they have done is the following:

 

Made a person redundant but to make it easier to get them out changed the payment to be a compensation payment as if a PG has happen and then made the  PG compensation a tax free payment under section 123.  They use the settlement agreement to make the payment valid in the eyes of DOL and IRD.

 

This is not a valid way to do this type of payment and if IRD found out this was not a real compensation payment they would have a go at the employer.  IRD is starting to have a close look at these types of payments as you would guess.