REDUNDANCY pay with SMP-tax deductions?! Please help...

maria7510 · PayPerShop Newbie Joined: 06 Oct 2008 Posts: 1

Hi, I would be so grateful if someone could help with my queries...I was made redundant in May 08 when I was on maternity. My work paid me one month redundancy pay which was taxable �1483.20. One month non taxable (as a goodwill gesture) �1483.20 and 19 weeks of SMP �2460.78 so gross is �5427.18....I only received �4323.83..

My SMP and one month's redundancy were lumped together totalling �3943.98 and because of this I was deducted �788.80 tax and 314.55 NI (�1103.35) which is what a 40% tax rate payer would pay.

I'm not even sure if my SMP should have been deducted , it certainly shouldn't have been deducted that amount!??

I have since had a refund of �245.60 but from being deducted �1103.35 (tax and NI) I was expecting a lot more back- have I been penalised permanently for having my SMP in lieu and if I manage to find another job this year will I ever see any more of a refund?
sorry so long, thanks very much, Maria

Ian Congreave

Welcome to the PayPerShop forum and thank you for posting your question.

I think it will be difficult to give you a concrete answer to this situation as there are a lot of factors that are not clear.

As I understand it, you were on maternity leave and receiving SMP. As you were paid up 19 weeks of SMP, I presume you were already 20 weeks through your leave so, based on your lump sum SMP payment, you were receiving �129.51 - more than the current weekly rate - suggesting that you were receiving some additional maternity pay on top of the statutory �117.18.

You also state that your redundancy pay was taxed, but not the extra redundancy pay. If the redundancy pay that was taxed was statutory redundancy pay, then that should not have been taxed and no NICs should have been deducted.

In spite of these uncertainties (from my point of view), in principle, the amount of tax you pay during a tax year will end up being correct, even if you have to claim a refund at the end of the year. If your statutory redundancy pay was taxed, you should complain to your employer but, if that gets you nowhere, you should still be able to reclaim the tax you paid on that. The lump sum SMP was certainly taxable - whether you paid tax at the time on the whole amount or week by week if it had been paid like that, the overall tax would end up being that same - again even if that meant getting a refund at the year end.

The NICs situation is more difficult. Presumably, the NICs were calculated on both the first redundancy payment and the SMP lump sum, Even so, if you were receiving �129.51 maternity pay, or even the standard �117.18, you would have paid very little in NICs. Because it was paid as a lump sum, the liability for you (and for your employer) was much higher. So your employer did himself and you no favours. Even though your employment was terminated, your employer could have continued to pay your maternity pay in instalments, minimising the NICs. But the problem with NICs is that it is calculated in full at the time of payment and not spread out over the year. In principle, you cannot claim a refund of the extra NICs, but you may be able to claim back the NICs paid incorrectly on the statutory redundancy pay.

So, the tax should correct itself at the year end, although you may need to claim a refund. The NICs paid on the maternity pay is probably not recoverable. You should discuss these issues with your employer's payroll department to see what they can do. If they cannot help, get the phone number of the tax office from them and explain the situation to an inspector there.

Also, feel free to write again on the forum if you are not clear about anything or if you can provide further information.
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Rob Hey · Posted: Tue Oct 07, 2008 2:09 pm Post subject:

Hi Maria,

I presume, too, that your ex-employers went through the redundancy consultation process correctly - as there is positive discrimination in favour of a woman on maternity leave?

Rob
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