Redundancy taxed in full

[newirishman]

The employer needs to *properly* account for the redundancy payment - unless they want to pay full whack of both employee and employer PRSI on the lump sum!
Which I am sure that don't want do - they can't just treat it as normal income.

The contract just means that you get one month per year of service instead of just the 2 weeks statutory.

 

[cremeegg]

Damn it. Is it worth talking to somebody like a lawyer? If so what type?

I really do appreciate your help. Thanks

I think that this whole thread is a little off.

The tax treatment of a redundancy payment is complex, and choices are involved.

If the payment is taxed as income under PAYE a reclaim for overpayment may be possible, but it is not necessary that the redundancy be taxed that way. There is a tax scheme for lump-sum payments, it is at the taxpayers choice, it effects future pension rights and it is complex. You need a tax accountant's advice.

 

[Sophrosyne]

A quick update, we have found her contract and it does have a Redundancy clause, which states 1 month's salary for every year worked. It finishes this clause by saying "shall be subject to the deduction of such tax as may be required by law".

See this from Revenue.

Redundancy payments may be taxed under TCA 1997 s 123, but only if they are not otherwise taxable.

Payments made under any clause in a contract of service are taxable under s 112 as income from that employment.

In your friend’s case, her redundancy payment is made in pursuance of her contract of service and so taxable under s 112.

Section 123 and reliefs provided by that section, therefore, would not apply.

 

[prettyboybaker]

See this from Revenue.

Redundancy payments may be taxed under TCA 1997 s 123, but only if they are not otherwise taxable.

Payments made under any clause in a contract of service are taxable under s 112 as income from that employment.

In your friend’s case, her redundancy payment is made in pursuance of her contract of service and so taxable under s 112.

Section 123 and reliefs provided by that section, therefore, would not apply.

Thanks for that. I had found this "A lump sum paid under the terms of a contract of employment is taxable in full
and does not qualify for exemption or relief.", here https://www.revenue.ie/en/tax-profe...ains-tax-corporation-tax/part-05/05-05-19.pdf, which makes this pretty clear cut that the entire thing is taxed.

They are going to make the case that their contract states 1 month's salary for every year, but for those without the contract piece, the offer is 4 weeks. This obviously works out cheaper for the company and would benefit the employees too. We are hoping they take this route as it's in everyone's best interest.

 

[Peanuts20]

I've worked for multinationals that have specified redundancy terms in their staff's T&C's, those included an ex gratia payment for redundancy based on service years and they were never taxed fully when paid as there as specific rules around the taxation of this

Taxation of lump sum payments

Lump sum payments in compensation for loss of employment are subject to tax. How is tax calculated and what are your entitlements?

www.citizensinformation.ie

One thing to watch out for however is that it is badged, in writing, as a redundancy payment and not anything else.

 

[Sophrosyne]

I've worked for multinationals that have specified redundancy terms in their staff's T&C's, those included an ex gratia payment for redundancy based on service years and they were never taxed fully when paid as there as specific rules around the taxation of this

The link you posted from the Citizens Information is in relation to lump sums that are not included in a contract of service.

 

[Sophrosyne]

Thanks for that. I had found this "A lump sum paid under the terms of a contract of employment is taxable in full
and does not qualify for exemption or relief.", here https://www.revenue.ie/en/tax-profe...ains-tax-corporation-tax/part-05/05-05-19.pdf, which makes this pretty clear cut that the entire thing is taxed.

They are going to make the case that their contract states 1 month's salary for every year, but for those without the contract piece, the offer is 4 weeks. This obviously works out cheaper for the company and would benefit the employees too. We are hoping they take this route as it's in everyone's best interest.

Best of luck in your endeavours.

 

[JoeRoberts]

Are they giving 2 payments ?

a) Statutory redundancy ( which is tax free up to certain limits regardless of contract)
b) Then a termination payment as per contract.

Or are they rolling all into B.
Many companies have "quasi contractual" redundancy packages by virtue of union agreements and precedence but this case is unusual to have it in written contract.

 

[Peanuts20]

The link you posted from the Citizens Information is in relation to lump sums that are not included in a contract of service.

It's not clear from the posts (to me anyway) as to whether a lump sum is being paid under T&C's or whether or not an ex gratia redundancy payment is being made. if the latter, then it should be taxed as a redundancy payment, regardless of what T&C's states. My concern for the OP here is that if the payment is not tagged as a redundancy payment by the employer, there will be tax issues accordingly.

 

[Sophrosyne]

A quick update, we have found her contract and it does have a Redundancy clause, which states 1 month's salary for every year worked. It finishes this clause by saying "shall be subject to the deduction of such tax as may be required by law".

 

[Gordon Gekko]

This is like the home for the bewildered as my late Nan was wont to say…