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Termination Payment Tax

Posted: Mon Feb 11, 2019 3:04 am
by fallenangel83
Hello,

This is possibly a maths query rather than a tax query...either way I'm stumped. I've been trying to work out the tax implications associated with two different termination payments. For the purposes of the query, assume the gross amounts I'm querying are after a £30k tax free payment (paid in 2018/19) and the additional payment is paid in 2019/20 on a 0T/Month 1 basis:

SCENARIO 1: Additional gross payment of £30k, total tax of £12,250 (£3,125 @ 20%, £9,375 @ 40%, £17,500 @ 45%) = net payment of £17,750
SCENARIO 2: Additional gross payment of £20k, total tax of £7,750 (£3,125 @ 20%, £9,375 @ 40%, £7,500 @ 45%) = net payment of £12,250

So if I've calculated this correctly, reducing the gross payment by £10k reduce tax by £4,500 but the net pay reduces by £5,500.

I can't understand why there's a £1k difference. Where does the £1k go?

Re: Termination Payment Tax

Posted: Mon Feb 11, 2019 9:13 pm
by bd6759
It's an arithmetic question.

£10,000 - £4,500 = £5,500.

You are reducing the pay by £10,000 , but also reducing the tax by £4,500. The net difference is £5,500