Colleagues have been contacted by members who have heard of the impending tax changes on redundancy payments via the BBC and other media. PCS have been lobbying the civil service and others to oppose this technical adjustment that will mean in practice members who are basic rate tax payers paying higher rates of tax on their redundancy payments and having to claim back the difference. PCS officials cannot give individual financial advice but can encourage members to check their redundancy payments and contact the HMRC on advice about claiming back overpayments where appropriate.
The following paragraphs and attached advice has been received from HMRC in relation to redundancy payments in the civil service:
- Instead of tax code Basic Rate (BR) being operated on all CSCS severance/redundancy payments (20% flat rate tax deduction in excess of the first £30,000), from 6 April Capita are required by the new PAYE regulations to operate tax code 0T (Zero T) Month 1 (on a non-cumulative basis).
- Code 0T Month 1 has the effect of applying not only BR tax of 20%, but for severance/redundancy payments in excess of £32,917 the Higher Rate (HR) of 40% will be applied. In addition, depending on the amount, the Additional Rate (AR) of 50% may also be applied.
- The changes are a result of amendments to the PAYE Regulations and are designed to ensure more taxpayers pay the right amount of tax at the right time.
- Any individuals who initially pay too much tax (for example a Basic Rate taxpayer) will be able to submit a repayment claim immediately by providing details of the payments and the tax paid to HMRC.
- Examples of how this new tax code will work in practice for CSCS severance/redundancy payments, are contained within the attached Executive Summary for illustration purposes.
