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Redundancy usually occurs when your employer needs to reduce their workforce or the job that you do is no longer in existence. As compensation for ending your employment, you will be paid redundancy pay.

Your employer may have their own redundancy scheme which may be more generous than statutory redundancy pay. If your employer doesn’t have their own scheme, you will receive statutory redundancy pay, which is calculated based on age, wages and length of service.

If your employer has their own redundancy package, you may receive payments other than the redundancy payment. These may include wages which are due to be paid, any bonus payment or maybe occupational pension. Any additional payments which are made along with your redundancy pay are liable to income tax and National Insurance payments. Redundancy pay is only taxable on amounts which exceed £30,000.

Tax and National Insurance will be deducted appropriately by your employer, following guidance provided by HM Revenue & Customs. A form P45 will also be provided showing details of all payments made and tax deducted to the date of leaving. If you receive anything else, other than cash towards your redundancy payments, these items will converted to a cash value and the amount will be used towards the £30,000 tax free limit.

If you start another job after being made redundant, any tax overpaid will be repaid through your wages if you hand your P45 in to your new employer. Similarly, if you receive Jobseekers Allowance or other benefit, any repayment will be made at the end of your claim.

About The Author

Gary Fields

Content Writer working alongside our expert accountants to bring you the latest Tax and Accounting news.

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