Tax Refunds and Redundancy
20th March 2018
You've probably felt the tremors of it, even if the full quake hasn't struck your business or industry. The Carillion Collapse, the Toys R Us Tumble and the Maplin Mishap are sending aftershocks up and down the country's workforce. Up to 200,000 high street store jobs are predicted to be lost in the next couple of years. Meanwhile the building trade is staggering to shoulder the weight after losing one of its key load-bearing members.
Redundancy is a fact of life in all kinds of business. For most of us, there's just no such thing as the old-fashioned job-for-life any more. The economy's changing, technology's constantly moving forward and a lot of people are suddenly finding that the job they do just no longer exists. Remember, though – the sky might be falling right now, but the end of the world's probably a way off yet.
If you're lucky enough to get some notice before being made redundant, there are a few things you can do to soften the blow. Obviously, looking for a new job is probably the most important one. Beyond that, though, it's worth making sure you aren't losing out unnecessarily. First off, you'll want to check you're getting any redundancy pay you're entitled to. The first £30,000 of that is tax-free, so getting it sorted out is essential. You should also check you've got any holiday pay, outstanding bonuses or commissions you're due.
Next up is checking what benefits you might qualify for while you're job hunting. Depending on your situation, you might be able to claim things like Housing Benefit, Jobseeker's Allowance (or Universal Credit) or Working Tax Credits.
What a lot of people don't realise is that being made redundant may also mean you're owed back some tax for the year. When HMRC works out your tax code, they base what you pay each month on your expected full year's earnings. Redundancy part-way through a tax year could well mean you're eligible to claim a tax refund. If you're only out of work for a few weeks between jobs, your new employer can probably help sort it all out. If it's longer, though, you'll have to take it up with the taxman himself. That's where RIFT comes in.
As for how much you're owed, it'll depend on what you earned during the tax year. To get your overpaid tax back after redundancy or stopping work, you'll need a P50 form from HMRC. You'll also need some paperwork to back up your refund claim, so keep your P45 handy. HMRC will use it to work out a new tax bill for you.
There are a few things to watch out for when you're chasing up what the taxman owes you. If you aren't expecting to go back to work any time soon, but then do, you can run into trouble. It's easy to burn through your entire tax-free Personal Allowance and suddenly find yourself paying tax on your whole income.
As with everything else to do with tax, your best bet for bouncing back from redundancy is with professional help. If you're already a RIFT customer, we can make sure you find the silver lining of your employment cloud. If you're not, the best guidance and practical help in the tax business is only a phone call or email away.
Increasing numbers of people use their redundancy money to set up their own business. If you're looking to go self-employed then you'll pay your tax through Self-Assessment instead of having it taken out of your wages. If you want to check if you have to submit a self-assessment tax return then our self asessment calculator can help you. We can also do your self assessment tax return for you and make sure you're not paying too much tax.
If you're in the building trade and thinking of setting up your own then you'll need to register for CIS (the construction industry scheme) as well. We'll get that all sorted for you - we'll help you claim your CIS tax refund each year and file your annual tax return. It's worth around £2000 a year for most our customers, so don't forget to ask for that money back.
A change in your employment status doesn't have to be a disaster, as long as you don't miss out on what you're entitled to. Have a word with RIFT. We'll quickly explain where you stand, and make sure the taxman always plays fair when it comes to your tax rebate.