With job losses starting to creep into the headlines, it’s worth remembering that the timing of a substantial termination payment can make a “big difference in cash-flow terms” if you are unlucky enough to lose your job, says The Schmidt Report.
It is fairly common knowledge that the first £30,000 of a termination payment is tax-free, and that any additional payment is fully taxable. If you are still on the payroll when the termination is paid, full PAYE deductions (bar national insurance) will be made on the excess.
Less well known, however, is the fact that if you come off the payroll prior to being issued with your P45, any payment made after this time is taxable only at the basic rate of 22%. If you are a higher-rate taxpayer (which you almost certainly will be if you find yourself in this situation), the higher-rate tax will be picked up on your self-assessment, which could be “nearly 21 months later” – a delay that could prove useful.