Genuine redundancy payments are taxed at special rates, and part of the redundancy payment can be paid tax-free. The tax-free limit consists of two elements: a base amount and an annual amount for each year of service, and both are indexed annually.
Will I be taxed on my redundancy payment?
Calculate your redundancy pay. Redundancy pay (including any severance pay) under £30,000 is not taxable. Your employer will deduct tax and National Insurance contributions from any wages or holiday pay they owe you.
Is the first £30, 000 of redundancy pay taxable?
Apart from earnings which are always taxable, the first £30,000 of your redundancy package is likely to be exempt. But it is your employer’s responsibility to tax your termination payment correctly and therefore the employer bears the risk of tax and penalties if the treatment is wrong.
Can you reclaim overpaid tax on redundancy payments?
You will be able to reclaim any overpaid tax and should contact HMRC to check your position. They may not be able to do this until the end of the tax year, when they will be able to reconcile your pay and tax position fully. You can see how tax is taken off redundancy payments in the example of Tom.
When do I get a redundancy payment from my employer?
When you become redundant (actually it is your job that becomes redundant) your employer may make a payment to you, called a redundancy payment. This is to compensate you for being made redundant. You may qualify for statutory redundancy pay to be paid by your employer, if you have worked for your employer for two years or more.
What are the different types of redundancy payments?
Depending on your employment conditions, for example, amounts your employer is required to pay under the industrial agreement or employment contract, a genuine redundancy payment may include: payment in lieu of notice. severance payment of a number of weeks’ pay for each year of service.
