Tax and Redundancy Payments
26th April 2016
It happens to the best of us, from time to time. The economy goes wobbly at the knees, businesses panic and suddenly your job gets kicked out from under you. Redundancy can be pretty painful, but it might not be as bad as it seems. You can even claim a tax rebate after redundancy in some cases.
What Is Statutory Redundancy Pay?
If you've been working at the same place for at least two years, and are made redundant, you're entitled to "statutory redundancy pay". Your statutory redundancy pay is set by the government, and you get it by law.
You can also claim statutory redundancy pay if you’re eligible and you’ve been temporarily laid off (without pay or less than half a week’s pay) for either:
- more than 4 weeks in a row
- more than 6 non-consecutive weeks in a 13 week period
There are some exceptions to statutory redundancy pay, based on the kind of work you do. You can find out more about redundancy pay and your rights on the government website.
How Much Will I Get From Statutory Redundancy Pay?
Under the current rules (when this post was written in April 2016) you will get:
- half a week’s pay for each full year you were under 22
- one week’s pay for each full year you were 22 or older, but under 41
- one and half week’s pay for each full year you were 41 or older
Length of service is capped at 20 years and weekly pay is capped at £479.
The maximum amount of statutory redundancy pay is £14,370.
You may even get more than just the basic payment, depending on your employer and your contract. Whatever your situation there are some RIFT Tax Facts you need to know if you've been made redundant.
What Happens If The Company I Was Made Redundant From Has Gone Bust?
Even if the company's gone bust, you can still get your pay-out. In that case, though, you need to claim it from the Redundancy Payment Office. You can get Form RP1 from the government website to do this.
Do I Have To Pay Tax On My Redundancy Payment?
The good news is that the threshold for paying income tax on your redundancy pay is pretty high at £30,000. The not-so-good news is that you're likely to be getting a lot less than that. The maximum your employer can be forced to pay you is £14,250.
Do I Have To Pay National Insurance On My Redundancy Payment?
As for National Insurance, you probably don't need to worry about that at all. No NI comes off your basic redundancy pay. If you get other perks in your package, though, they might get bitten into. We're mostly talking about things like payments in lieu of notice, here. If you get something that isn't cash included in your package, the taxman will work out its value. If it takes you over the £30,000 limit, you'll be taxed on it.
A few things to keep in mind:
- Holiday pay is taxed as normal, and your standard NICs apply.
- If you've got an occupational pension, it's taxed as normal but without NICs.
- If you're fired for misconduct, you're out of luck and don't get anything.
Will Tax Be Taken Off My Redundancy Package Before I Get It?
Depending on how your employer's set up, your redundancy package might be taxed before you get it. If it isn't, you'll probably have to sort it out with the taxman yourself.
If you get the money before you got your P45, any tax will probably be included in that. If not, you might get given a 0T tax code. That's like not having a tax-free Personal Allowance for your payment, so you might end up having to reclaim some cash from HMRC. Of course, all of this only matters if you're getting enough to be paying tax on it at all. Depending on your situation, being owed a refund might actually be a fairly nice problem to have.
As with everything tax-related, there are loads of rules, exceptions, tripwires and pitfalls. Losing a job is enough of a headache as it is. A quick chat with RIFT Refunds can take the pain right out of dealing with HMRC. Get in touch or click the button below and see if you are due a tax refund.