How is redundancy taxed

how is redundancy taxed

Tax Information

Redundancy payments up to £30,000 in the course of working for any one company are normally free of tax. Anything above £30,000 is taxed at your highest rate.
  • For PAYE tax purposes, some types of leaving payments are tax free, some taxable in full, and some taxable only above £30,000
  • For NICs purposes, one off leaving payments are either wholly taxable or wholly tax free.

Completing your tax return

Tax on relocation packages

An alternative to redundancy payments?

When you are made redundant your employer should give you a P45 form. Give this to the benefits office or your next employer.

HELP WITH COMPLETION OF YOUR TAX RETURN

WITH RESPECT TO LUMP SUMS AND COMPENSATION PAYMENTS

Inland Revenue

If you have received a lump sum from your employer as a redundancy or compensation payment, this sheet will help you complete the employment pages of your tax return.

The first Ј30,000 of such a payment are usually exempt of tax. Payments from two companies that are under one control, qualify for only the one exemption. If payments span across a number of financial years, then any unused exemption may be carried over to the following year.

INCOME TAX AND JOB SEEKERS

Jobseeker's Allowance replaced Unemployment Benefit and Income Support for unemployed people

in October 1996. Unemployed people can claim this allowance for themselves and one adult dependent. This allowance is a taxable income.

If you are not working at the end of the year (April 5th) you will get a P60U form. This details the taxable benefits you have received and the tax that you have paid.

You can not claim a PAYE tax refund while you are claiming benefit. When you get a job, complete the form at the back of booklet ES40 (which gives details about signing on) and return it. The job centre will then give you a P45 for your new employer. If you have paid too much tax your new employer or your job centre will give you a refund.

INCOME TAX AND RELOCATION PACKAGES

For more information please click here

When are redundancy payments NOT tax free?

When your employment contract specifies any redundancy pay or benefits. If this is the case any benefits are taxable.

An alternative to redundancy payments?

It may be possible to negotiate with your employer to made additional payments into your pension instead of making a redundancy payment. This will enhance your pension and help you avoid paying tax on those payments above £30,000!

Don't forget to hand over your P45! If you don't you will end up on an emergency tax band and pay extra tax until it is sorted out.

Source: www.redundancyhelp.co.uk

Category: Taxes

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