Yes it is taxable. It's not redundancy.RS2K said:Is this payment in lieu of notice taxable?
DrWizzard,The issue is whether the employer had a legal obligation to pay it or not. If there is a legal requirement then it is taxed. If there isn't then it looks to me that it would ne treated as a termination lump sum and not be taxable.
LUMP SUM PAYMENTS
What is Taxable Lump sum payments paid on Redundancy/Retirement are taxable. However, they qualify for special tax treatment. They may be exempt or qualify for some tax relief.
Tax Relief As follows;
1. Basic Exemption
The Basic Exemption is €10160 plus €765 for each full completed years service with the employer. If it is the claimant's first claim the Basic Exemption may be increased by up to €10,000* subject to certain conditions. From 1/1/02 the increased exemption of €10,000 may be availed of by an individual every 10 years.
Increased Exemption
If claimant is not a member of an occupational pension scheme or has irrevocably given up the right to receive a lump sum from the pension scheme the basic exemption at (1) above may be increased by €10,000*
If claimant is a member of an occupational pension scheme the increased exemption of €10,000* is reduced by, a) the amount of any tax free lump from the pension scheme or b) the present day value at date of leaving employment of any tax free lump sum which may be receivable from the pension scheme in the future. * Prior to 1/1/02 the increased exemption was £4,000.
2. Standard Capital Superannuation Benefit
This relief benefits those with high earnings and long service. It is about 1/15th of the average annual pay for the last 3 years of service to date of leaving less any tax free lump sum entitlement from the pension scheme.
3. Top Slicing Relief
Top Slicing is additional relief given to ensure that the lump sum payment is not taxed at a rate higher than the claimant's average rate of tax for the previous 5 years. This relief is claimed after the end of the tax year.
Exemptions
1. Statutory Redundancy Payments are exempt from tax.
2. Payments made on account of injury or disability
3. Payments made when employment consists of foreign service where certain conditions are met.
Refund of Superannuation
Contributions The standard rate of tax of 20% deducted by the pension scheme is non - refundable.
(Prior to 5/12/01 rate of tax charged was 25%)
Where to Send Claim Use your PPS number to find the postal address for your Revenue office in our [broken link removed]
Reference Material [broken link removed]
Section 123 TCA 1997
Section 201 TCA 1997
Schedule 3, Paragraph 10 TCA 1997
- Treatment of Redundancy Payments
[broken link removed] - Queries
[broken link removed] - Pay in lieu of notice
[broken link removed]
[broken link removed] - Termination Payments and Legal Costs
from: [broken link removed] - Pay in lieu of notice
Schedule E
Minimum Notice and Terms of Employment Act 1973 to 1991 -
what is the taxation treatment of sums paid under this Act?
Normal Pay/Sick Pay/Holiday Pay
Tax should be deducted by the employer under PAYE in the normal way.
Payment in lieu of notice
This income is chargeable to tax but qualifies for the £8,000 (plus £600 for each complete year of service) exemption (and the additional exemption and reliefs, where they apply) provided for in Section 201 and Schedule 3 TCA 1997.
However, where the contract of employment provides for a payment of this kind on termination of the contract, whatever the circumstances, such payment is chargeable to income tax in the normal way without the benefit of the exemption and reliefs mentioned above.
ClubMan said:I didn't realise that non redundancy termination payments may not be (fully?) taxable in certain circumstances.
A very reliable source has recently confirmed to me that this is indeed the case.For the record, you need to be aware that on leaving an employement whether you are made redundant or not, certain payments fall into the old Section 110 ITA 1967 which i think described what qualified as a termination lump sum. I stand by comments on the basis of practice
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